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

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

Post by michaeljc70 »

crossbow wrote: 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

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.
No. We only allow 10% to be rented and that quota is filled. I also don't want to bother with being a landlord and have all my real estate in one smaller development. Having something scarce (a townhouse in an area with almost all condos/apartments) helps.
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FIREchief
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by FIREchief »

niners9088 wrote: Thu Aug 15, 2019 10:58 am Also it looks like your insurance is different. Typically Home Insurance covers a lot more the rental insurance.
Other than losses to the structure/property, what else does homeowners insurance cover that renters insurance does not?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
LilyElder
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by LilyElder »

As a renter, I have found that the amounts and percentages of rent increases are unpredictable, except when one is under rent control, which unfortunately I am not. This does not lead me to a conclusion about whether renting or buying is best because there are so many variables, but it is an important reality to consider.

I have lived for many years in a rented studio apartment (one room with a small kitchen and bath). My rent has increased every year since 2013. (I did not calculate any earlier years, but they also increased). I am a senior living on a small retirement income, and I am being priced out of my area. I made a chart of the percentage increase in my rent each year from my 2013 rent through my 2019 rent, as follows:

(2013) 3.16% - 2.94% - 2.29% - 6.15% - 10.53% - 3.00% - 11.1% (2019)

The above shows the percent increase from the previous year. However, from the 2013 rent through the 2019 rent, the total percent increase in my rent has been 50%, which could be expressed this way:

2013 rent = $2x
2019 rent = $3x

Something to consider.
michaeljc70
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Joined: Thu Oct 15, 2015 3:53 pm

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

Post by michaeljc70 »

LilyElder wrote: Fri Aug 16, 2019 5:59 pm As a renter, I have found that the amounts and percentages of rent increases are unpredictable, except when one is under rent control, which unfortunately I am not. This does not lead me to a conclusion about whether renting or buying is best because there are so many variables, but it is an important reality to consider.

I have lived for many years in a rented studio apartment (one room with a small kitchen and bath). My rent has increased every year since 2013. (I did not calculate any earlier years, but they also increased). I am a senior living on a small retirement income, and I am being priced out of my area. I made a chart of the percentage increase in my rent each year from my 2013 rent through my 2019 rent, as follows:

(2013) 3.16% - 2.94% - 2.29% - 6.15% - 10.53% - 3.00% - 11.1% (2019)

The above shows the percent increase from the previous year. However, from the 2013 rent through the 2019 rent, the total percent increase in my rent has been 50%, which could be expressed this way:

2013 rent = $2x
2019 rent = $3x

Something to consider.
Good, important points.

People will say not everything goes up faster than inflation. Well, true. However, do you want to buy/rent in an area where everything is stagnant? I don't. I know you cannot predict this precisely, but there are certainly clues.
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dm200
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 »

For some people, buying a home results in "forced savings" as they must, or choose to, put more money (for a while) into the mortgage payment, taxes, maintenance and upgrade of the house)
The_G_Fund
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by The_G_Fund »

dm200 wrote: Wed Aug 14, 2019 10:47 am
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.
This type of elementary rate of return calculation for real estate ALWAYS fails to account for hidden costs such as closing costs, mortgage interest, property taxes, insurance, maintenance, and realtor commissions. Even if you hold a property for 40 years and the value "grows" by 5% per year, these hidden costs can eat up over 2% of your annual return. If you own a property for just 10 years and the value "grows" by 5% per year, these hidden costs can actually exceed 5%, resulting in a negative return. More details are explained in this helpful post -- https://www.makingyourwealth.com/hidden ... l-estate/

Additionally, the hidden costs mentioned don't even include more furniture to fill up the space, landscaping/yardwork costs, higher utility bills, and human effort to inspect/maintain the property.

Calculating the rate of return of real estate is never as simple as calculating the rate of return of VTSAX.
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