What are the financial risks of not owning a house?

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rgs92
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What are the financial risks of not owning a house?

Post by rgs92 »

If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
J295
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Re: What are the financial risks of not owning a house?

Post by J295 »

That's fine financially to not ever own real estate, although I'm a bit confused when you state you don't plan to own any long term. Does that mean you may own some short term? Owning short term of course has it's own set of risks and potential rewards financially.
ScubaHogg
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Re: What are the financial risks of not owning a house?

Post by ScubaHogg »

Maybe if you have an income stream that doesn’t keep pace with inflation AND we experience high inflation? In that case your rent might increase significantly without your income increasing?

A long term lease, if you could get it, would mitigate that risk somewhat.

Another might be “forced” moves, which can cost you money?
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TomatoTomahto
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Re: What are the financial risks of not owning a house?

Post by TomatoTomahto »

IMO, renting should be the default position. If you have kids or a compelling desire to modify a house, go for it, but I don’t think it’s a financial “necessity.”
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sailaway
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Re: What are the financial risks of not owning a house?

Post by sailaway »

Are you willing to relocate if rents in your area sky rocket?

The biggest danger is not investing the money that you would otherwise have invested in real estate. This is the main reason that middle class wealth and home ownership are so closely related.
alex_686
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Re: What are the financial risks of not owning a house?

Post by alex_686 »

There is no risk exactly.

Owing a home is a decent proposition and the standard option. There are modest tax advantages. Most are purchased with a mortgage, which is cheap leverage and forces people to save. After all, each payment has some principle. Great hedge against inflation.

You just have to have a slightly higher savings rate and beca bit more focused on inflation.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
BrooklynInvest
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Re: What are the financial risks of not owning a house?

Post by BrooklynInvest »

Inflation's impact on housing cost. I'll have my house paid off by retirement and a renter will continue to pay increasing costs to keep a roof over their head. BUT... this glosses over a few important issues.

FINANCIAL: I don't know if I would have been better off renting my house and instead of making extra mortgage payments, investing that money. It's possible buying a house put me behind financially - my house increased in value but the markets have done well over the 12 years I've owned it. And I aint selling my house so it's not like that increase affords me a better lifestyle. Granted my kid might benefit!

BEHAVIORAL: I don't want to be paying rent in my 70s, but that's just me.
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CyclingDuo
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Re: What are the financial risks of not owning a house?

Post by CyclingDuo »

rgs92 wrote: Thu Oct 15, 2020 7:52 amIf you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.

Owning a home is an expense.

There are fees to purchase, there is an interest rate charge during the length you hold a mortgage, there is insurance, there is ongoing maintenance, there are repairs, there are property taxes, etc... that all add up to being one of life's major expenses. The asset of the home itself can always be sold, but the appreciation of the asset may or may not result in breaking even or providing a gain over time.

The internet is full of opinions on home ownership...

https://www.thesimpledollar.com/mortgag ... wn-a-home/

https://www.investopedia.com/articles/m ... ership.asp

https://www.thebalance.com/can-you-find ... me-1798256

https://www.forbes.com/sites/kellyphill ... 2fe55b42fa

https://www.moneyunder30.com/why-your-h ... investment

https://halfbanked.com/you-dont-need-to-buy-a-house/

https://www.businessinsider.com/reasons ... ner-2018-7

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tibbitts
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Re: What are the financial risks of not owning a house?

Post by tibbitts »

[quote=BrooklynInvest post_id=5548333 time=1602767633 user_id=46423
BEHAVIORAL: I don't want to be paying rent in my 70s, but that's just me.
[/quote]
Unfortunately you will be paying rent, in the form of real estate taxes, city/town fees, home insurance, repairs, etc.
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Sandtrap
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Re: What are the financial risks of not owning a house?

Post by Sandtrap »

rgs92 wrote: Thu Oct 15, 2020 7:52 am If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
Decide never to own (or not to own) a house or any real estate long term.

Reasons are individual. What are yours? (since you are asking, curious)
(questions can be reversed per "own" or "not to own", that is the question)

Financial risks?
Portfolio or retirement portfolio unable to sustain costs of home ownership?
Stress of ownership and responsibility (physically, financially, lifestyle, etc)?
Commitements, long term physical location, financial commitement uncertainty?
Income uncertainties?
Fed up with prior home and R/E ownership for what reasons if this?
Other insecurities or unknown variables?
Don't like owning things so large with large and long term financial commitements?
etc?

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rgs92
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Re: What are the financial risks of not owning a house?

Post by rgs92 »

Thanks for all the quick replies. I did mean just living your life all the way through retirement (and in retirement) without a house.
I always heard that owning a house was an important component of wealth (or just financial well-being), and inflation protection.
But I sold my house and I'm now renting, and it seems simpler with no maintenance headaches, so I'm thinking of just not buying a house.
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Re: What are the financial risks of not owning a house?

Post by bloom2708 »

The biggest risk is you spend the difference between total own costs and total rent costs.

If you save the "extra", you will likely come out ahead. I know we would have more savings/investments if we didn't own.

However, there is a lifestyle component that doesn't have a dollar value.
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Ryzen
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Re: What are the financial risks of not owning a house?

Post by Ryzen »

The problem with this forum is we try to turn almost everything into a financial decision. This is a lifestyle and personal preference decision. Personally, I like having my own space and if I happen to get any financial gain from owning a house, that's just a bonus.

They way I look at it is everybody needs a place to live, and everybody is going to be paying something for that. Either monthly rent or mortgage/taxes/upkeep. Buying is more risky, and with that risk comes a chance at reward in the form of property value appreciation. But don't count on it, and don't fall into the trap of using a house as a retirement plan or ATM or get rich quick scheme.
deikel
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Re: What are the financial risks of not owning a house?

Post by deikel »

I feel there is a 'risk' that you have to move because the landlord doe snot extend your lease and it might come at an inopportune moment - with owning a home you do not have that problem other then you stop paying mortgage or taxes

Financially, its no different to rent from a landlord or rent from the bank (if you have a mortgage) or rent from the county/school if you have high property taxes or all of it combined.
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rgs92
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Re: What are the financial risks of not owning a house?

Post by rgs92 »

Ryzen wrote: Thu Oct 15, 2020 8:52 am The problem with this forum is we try to turn almost everything into a financial decision. This is a lifestyle and personal preference decision. Personally, I like having my own space and if I happen to get any financial gain from owning a house, that's just a bonus.

They way I look at it is everybody needs a place to live, and everybody is going to be paying something for that. Either monthly rent or mortgage/taxes/upkeep. Buying is more risky, and with that risk comes a chance at reward in the form of property value appreciation. But don't count on it, and don't fall into the trap of using a house as a retirement plan or ATM or get rich quick scheme.
Well that's a good answer, thank you. Because, if I'm not misinterpreting you, it is not necessarily true that you need to own a house to be financially secure. So I can just do a Firecalc analysis (factoring rent into it) and let it be. Thanks.
UpperNwGuy
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Re: What are the financial risks of not owning a house?

Post by UpperNwGuy »

I'm retired, and I haven't owned a house in nearly 20 years, and I haven't experienced any risks. I think my finances are equally good, and they're definitely more liquid.
Kelrex
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Re: What are the financial risks of not owning a house?

Post by Kelrex »

Rent vs Own is very, very much a lifestyle decision.

Yes, there are financial factors to account for, but the major deciding factors that contribute to someone deciding to rent or own tend to be primarily about lifestyle. Meaning, most people who want to own will do so even if renting was more financially beneficial. Likewise, most people who want the flexibility and freedom of renting aren't about to tether themselves to a property.

No, you are not at any particular risk by renting long term. Your finances will be a bit different from someone who owns, but different doesn't mean worse or better.
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rgs92
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Re: What are the financial risks of not owning a house?

Post by rgs92 »

I appreciate the answers here. I like Bogleheads because I get to hear ideas that don't seem to follow mainstream truisms. Thanks again to everyone for the honesty.
Coltrane75
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Re: What are the financial risks of not owning a house?

Post by Coltrane75 »

Someone mentioned the power dynamic of a landlord over you as a renter. That is important.

Similar relationship when you "buy" a home with a mortgage, you're basically renting it from a bank. There are some differences to consider if they're important to you.

Financial: If you're confident your income can keep pace with living expenses, there is no local large discrepancy between home vs rent, and are a saver; I don't see a problem with renting long term.

Power/Control: One thing to consider though is buying a home can lead to the ultimate goal of owning the home outright. Then you'll never need to worry about a bank (debtor's prison) or landlord (tenant) effecting your living arrangements.
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Re: What are the financial risks of not owning a house?

Post by aristotelian »

I think the biggest risk is housing inflation. If you own your home, the price you paid is locked in for posterity and you will never have to pay more. Whether you pay it off or take out a 30 year mortgage, you know what your housing cost is going to be unless you make the choice to move.
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Re: What are the financial risks of not owning a house?

Post by mbasherp »

I think the two biggest “risks” of not owning one’s home are housing cost inflation and instability (if you want to stay in the same spot, it’s not only up to you).

There’s no one size fits all, because housing markets are so localized. There are certain areas where I would be hesitating to own. On average, I do agree with the common wisdom of owning but not for the typical reasons. Here’s why owning usually turns out well on balance in the long term:

1) Federal subsidy of the artificially low, fixed rate loans for home ownership.
2) The tax free status of imputed rent in the USA.

If your plan makes those immaterial, you probably have good reasons to keep renting “forever.”
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Re: What are the financial risks of not owning a house?

Post by michaeljc70 »

I see two financial risks (there are other risks): 1) if housing prices rise faster than your income and you don't own, you may be forced to move to another area and 2) if for whatever (legal) reason the landlord wants you out you are forced to move and have the costs associated with that. That would be moving costs but also you may not get as good of a place for the same price. A third risk which may or may not apply depending on the area, type of property, etc. and how you do the math is you are not building equity. If you rent and save the difference this might be mitigated.

Edit: response above came in right before mine and is pretty similar.
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Re: What are the financial risks of not owning a house?

Post by adamthesmythe »

I perceive the major financial risk as high inflation rate in rents.

The main annoyance risk is finding yourself required to move involuntarily.

The main psychological risk is lack of control over your personal environment.

Especially in retirement, a perceived financial benefit of renting is lower cost which may not prevail long-term.
Kelrex
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Re: What are the financial risks of not owning a house?

Post by Kelrex »

rgs92 wrote: Thu Oct 15, 2020 8:44 am Thanks for all the quick replies. I did mean just living your life all the way through retirement (and in retirement) without a house.
I always heard that owning a house was an important component of wealth (or just financial well-being), and inflation protection.
But I sold my house and I'm now renting, and it seems simpler with no maintenance headaches, so I'm thinking of just not buying a house.
Yeah, you'll hear a lot of things because people say a lot of things, but it's just that, people saying things.

There are benefits to both owning and renting. As to whether there are financial benefits to either, it really depends on the market you are in.

IMO, the biggest benefit of renting is the opportunity for flexibility that it buys you. If you are the type who doesn't mind moving, then it's a lot easier to do things like relocate for work opportunities if you don't own a home.

In addition, there's a substantial financial benefit to renting that people tend to disregard, and that's the DGAF factor when it comes to things like size and finishes.

When you are renting, you are much less likely to go bigger than you need, because you can always upsize and don't want to throw away money, so a guest bedroom for occasional guests feels much less compelling when you don't strictly need it and have to pay 30% more rent to get it.

You also don't tend to get sucked into caring about the materials that your countertops are made of, and might hesitate to "invest" in things like handcrafted artisan furniture, which might not work in the next place.
Renting gives you a bit of detachment from the powerful home-consumerism forces that make a home feel like an extension of self.

It's very common that once people own and see their residence as "permanent", suddenly the details and the quality of things starts to matter a lot more.

Perhaps you can't quantify that effect, and I'm sure there are people who don't experience it, but from what I've seen, it accounts for massive sums of money spent on non-critical things.
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Re: What are the financial risks of not owning a house?

Post by 260chrisb »

My financial risk was saving a LOT for retirement as I rented until I was 53 and had very low overhead!! I assumed that risk and it worked out very well thank you very much. Home ownership is costly but certainly financially beneficial to most so in all seriousness one risk would be to not utilize the money you may save not owning a home over the long term. I utilized it to my benefit for retirement and also now own a home.
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Re: What are the financial risks of not owning a house?

Post by TomatoTomahto »

My kids have reaped the benefits of renting. Moving cross country for a job, or internationally, is at worst a few months rent to get out of the lease. Employers appreciate it. Why give up geographical liquidity for no reason?
Okay, I get it; I won't be political or controversial. The Earth is flat.
MittensMoney
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Re: What are the financial risks of not owning a house?

Post by MittensMoney »

For a lot of folks, paying a mortgage is a method of forced savings. Even if they had nothing leftover at the end of the month after purchases & bills, they're still building equity in an asset. If you're a renter and you have nothing leftover after purchases & bills, you haven't saved anything that month. This is only a risk if you're living beyond your means, though. All other "risks" involved in the rent vs. buy debate are actually trade-offs.
TNWoods
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Re: What are the financial risks of not owning a house?

Post by TNWoods »

I stayed in the same place for 22 years (so far).

I recently had a reason to check what I would have paid in rent vs what it cost me to buy this house. (I assumed the rent that I paid prior to buying this house increased linearly over the years to end at the cost of rent today.)

Including two new roofs, I am $68,000 ahead by buying (and paying off early). (I did no time value of money, opportunity cost, or any other corrections.)

And when I sell the house, add the full sale amount to that $68,000, and that will be the benefit to me of having bought instead of rented.

That final amount is not insignificant, but it's not "risk". It would be the "cost" of renting instead of owning, and would be increasing by about $1000 every month in my area, for a modest apartment.

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rgs92
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Re: What are the financial risks of not owning a house?

Post by rgs92 »

I used to be obsessed with the tax breaks for owning (coming from a high property tax state [NJ] and formerly higher interest rates), but now I am enjoying the big (huge?) standard deduction without any effort.
Ha-ha, it's like having a "rent deduction."
On the other hand, there are those microscopic interest rates, as noted earlier. Thanks for pointing that out.

I do have negatives about lifestyle, having to go through the property owner for repairs, but I like not having to worry about some extra weeds and cosmetic things. And I have privacy since I rent a nice private house.

I don't know if it makes sense, but since my budget is more stable (no house maintenance shocks), I have a higher stock percentage in my portfolio asset allocation. And I also feel I should have more equity in *something* since I have no house equity.
Do those ideas make sense?

(As far a lifestyle is concerned, I think my wife would like to buy a house again, but that's tangential and personal and not really appropriate for the forum. I just deal with it.)
Last edited by rgs92 on Thu Oct 15, 2020 12:37 pm, edited 4 times in total.
e5116
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Re: What are the financial risks of not owning a house?

Post by e5116 »

I might re-word the thread title to "What are the lifestyle risks of not owning a house?" I see the choice as less financial (although there are financial implications) and more that by renting, you may have to move a bunch of times when leases expire, can't make capital improvements to your house (Well I guess you COULD, but most don't), and just overall less stability. This might be okay if you're a single person who's willing to be flexible and nimble (and renting affords you more flexibility), but might not be preferred if you're married with three children and you want to "stay put."

I bought a house for lifestyle reasons, not financial ones. Although paying a small mortgage in 20+ years (i.e. it will seem smaller because it stays the same and inflation rears its head over 20 years) vs. paying increasing rents may make me come out ahead. Or may not...
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Re: What are the financial risks of not owning a house?

Post by stocknoob4111 »

rgs92 wrote: Thu Oct 15, 2020 7:52 am If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
I have always wondered about this as well since I am a lifelong renter but with both home values and rents skyrocketing to the stratosphere with no end is sight I am getting a little concerned if I should've locked in much lower costs earlier. Too late to do anything about it now, yes it does pose a risk as Real estate is inflating at about 4 or 5 times the overall rate of inflation.
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Re: What are the financial risks of not owning a house?

Post by LittleMaggieMae »

BrooklynInvest wrote: Thu Oct 15, 2020 8:13 am Inflation's impact on housing cost. I'll have my house paid off by retirement and a renter will continue to pay increasing costs to keep a roof over their head. BUT... this glosses over a few important issues.
Are you assuming that once your house is paid off you won't have any "housing" expenses ever again?

A paid off house only saves you "principle and Interest" on the loan. You still have property taxes, insurance(s), hoa fees, maintenance (roof, water heater, HVAC, plumbing, landscaping, painting, windows, etc... remember you might be living in your house 20 to 30 years AFTER you've paid it off). you also have utilities.

I've also noticed that over time property taxes and insurances and the cost to maintain one's home goes up. Having a paid off house doesn't mean you remove a bunch of line items from your "spending plan" and will never have to pay those expenses again as long as you own your home.

I get it that "rent" is paying the landlord for Principle, Interest, Taxes, and Insurance(s), hoa fees, maintenance, possibly a utility or two. But I think it's not quite right to say that having a paid off house is somehow a lot less expensive than paying rent.

Back in the '90's many of the WWII era home buyers started dying or moving away to assisted living. I was looking for a "Fixer Upper" house to buy - and I was amazed at the large number of houses that were "frozen" in time AND in various states of disrepair because the old person who lived there - either couldn't afford the maintenance OR didn't want to/couldn't bring themselves to spend the money to do it. - I'm talking leaking roofs, rooms closed off because a window was broken, bathrooms no longer used because a drain clogged, kitchen sinks no longer used because a drain clogged, leaks under sinks/tubs that rotted the flooring underneath and visibly damaged floor you could see without looking under the sink... I could go on but wont. I got a great deal on a solid house that needed ALOT of repairs - about 25K worth... so yeah, the little old lady who died in the house didn't have to spend that - but she lived with some inconvenience (and a roof that leaked and drafty windows) probably for several years at a minimum. And her estate didn't get a very good price for the family home either (they didn't want to have to deal with the "fix ups".)

Hmmm, ok, now that I think about it... owning a paid for house (with senior discount/tax freeze on property taxes) and doing nothing to it for a decade or two IS cheaper than renting... You are right.
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rgs92
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Re: What are the financial risks of not owning a house?

Post by rgs92 »

So someone pointed out the low mortgage rates (as a de-facto "federal subsidy"), but I have some doubts about this:
[1] As real interest rates, they are not that low (inflation is very low);
[2] Interest is effectively not deductible if you don't itemize and use the standard deduction ($24,000!). So 3% is the new 4%.
[3] If you have to move later on for any reason, you may have a higher rate environment.

And as far as higher house prices go (and this is philosophical), you are leveraging your investment. I could theoretically do that by borrowing money and buying stock with it; not that I'm thinking of doing that.

Just some random thoughts here. Thanks for reading.
LISD
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Re: What are the financial risks of not owning a house?

Post by LISD »

If you think you may be moving frequently (unstable job) or don't like constantly fixing/remodeling, those are good reasons to rent. If you have hobbies that require a house, your own house (woodworking, place to park a boat(s), like to work on cars, gardening), and/or like fixing/improving things, then those are good reasons to buy (but only if your job is stable). Practically speaking you can do some of these things without buying, but your less likely too (for example, if I were to rent, I would not spend 100 hours installing raised vegetable planters like I just did, on someone else's property, even if they gave me permission to do so).

Financially, it really depends on your market. In my market, the value of my house has increased by double the inflation rate (including all repair/remodeling costs) over the past 24 years. My market is however, not the norm. I've had uncles that have lost money and broke even over similar and even longer periods.

But consider this, in that same time span that my house has doubled the rate of inflation, the stock market is up by more than triple the inflation rate (the bulk of that gain over the last 12 years).

Obviously, there are no guarantees any of this will happen over the next 24 years.

So, consider these things: your market, your job stability, if not buying a house would you invest that money? do you have any interests/hobbies that would require you to (or make it easier to) engage in those hobbies? Do you like working with your hands/tools/fixing/improving things?

And finally, not having a mortgage (eventually paying off the house) or rent was a huge player in my decision to retire. With a mortgage or rent, and with the uncertainty of how those increase with time, would have complicated the financial calculations. It's definately nice NOT to have the anxieties associated with those complications post-retirement.
X528
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Re: What are the financial risks of not owning a house?

Post by X528 »

rgs92 wrote: Thu Oct 15, 2020 7:52 am If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
See this book:

The Wealthy Renter: How to Choose Housing That Will Make You Rich by Alex Avery:

https://www.amazon.com/Wealthy-Renter-C ... 311&sr=8-1
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rgs92
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Re: What are the financial risks of not owning a house?

Post by rgs92 »

Thank you.
michaeljc70
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Re: What are the financial risks of not owning a house?

Post by michaeljc70 »

Obviously, a paid off house doesn't mean there are no expenses. However, the bulk of your housing costs go away in most cases. As to property taxes, things vary a lot by jurisdiction (this example is in one of the biggest counties in the US). A close relative passed away a few months ago. In selling the house we found out she was paying 10% of what the new owners will pay in property taxes. In other words, she was paying $700/yr and the new owner will pay over $7k per year. This is due to having the senior freeze and exemption. A senior renting won't get those savings anywhere I know of.
bogledogle
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Re: What are the financial risks of not owning a house?

Post by bogledogle »

adamthesmythe wrote: Thu Oct 15, 2020 10:55 am I perceive the major financial risk as high inflation rate in rents.

The main annoyance risk is finding yourself required to move involuntarily.

The main psychological risk is lack of control over your personal environment.

Especially in retirement, a perceived financial benefit of renting is lower cost which may not prevail long-term.
This. As a serial renter, I move every few years to make my commute shorter, get a bigger place ..etc. If I had to buy, I would a more expensive place than what I currently rent because I would think re-sale, schools, commute, future needs ..etc.

The only thing that has made me regret renting is the landlord or involuntary moves due to landlord. Some landlord are great and some are terrible ..... Well, let me rephrase that - a few landlords are great and most are terrible. Either they are cheap and don't do any maintenance or raise rents too frequently because they know how much you make, or they are too nosy and emotionally attached to the property and always worried if the renter is damaging the property (even though they have a 2 month deposit and a lease that says the renter is liable for damages).

My suggestion is to always rent from a property management company. It tells you the landlord is not cheap and management companies try keep tenants so they don't want to do extra work.
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Re: What are the financial risks of not owning a house?

Post by anoop »

rgs92 wrote: Thu Oct 15, 2020 7:52 am If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
From a financial standpoint it is far less risky to be a renter. The downsides with renting are noise, neighbor issues in traditional apartments, and being asked to move on short notice in the case of house rentals because the owner wants to sell.
fyre4ce
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Re: What are the financial risks of not owning a house?

Post by fyre4ce »

Financial risks of renting:
  • Rents can increase, sometimes quickly. This could be partially mitigated by laws and/or long-term leases.
  • You could be outright evicted and need to move, possibly on short notice, with attendant financial impacts.
  • The money you would otherwise have tied up in home equity could be invested in risky assets (eg. stocks), and thus could have risk attached to it indirectly.
  • You lose out on the tax advantages of owning, the most significant of which is the $250,000/$500,000 homeowner's exclusion on capital gains.
  • You lose out in the inflation protection of a long-term fixed-rate mortgage.
  • You have no equity you can borrow against (eg. HELOC) at a decent interest rate, if you need cash quickly. If you otherwise have investments you can borrow against, this risk could be partly mitigated.
  • There could be risks associated with a landlord - damaging your property, sticking you with repair charges, not returning deposits, etc.
Financial risks of owning:
  • You will have an expensive un-diversified investment that is heavily tied to the local, state, national, and global economy and government. If you have a mortgage, this investment is leveraged, which amplifies both the upside and downside. Some of this risk (eg. fire, flood) can be mitigated a great deal with insurance. Other parts (eg. declining values) are unmitigated, although in a non-recourse state, the downside loss is limited mostly to your equity.
  • Transaction costs are high, so if you have to move (especially after not having lived in the home a while) then you can possibly lose money.
  • If you have a variable rate mortgage, rates could increase.
  • Property taxes could increase. Some areas have laws limiting the rate of increase.
  • You could be faced with expensive repairs on the home: structural, roof, HVAC, plumbing, electric, etc etc. I recall a horror story here on BH where a forum member progressively discovered structural and code issues in their home that ended up costing over $1M to fix. It's difficult or impossible to borrow money against a home that's not in good shape. If I recall, he was finally able to find a lender of last resort, and was narrowly able to avoid emptying retirement accounts or walking away from the home, both of which could have amplified the loss. Fortunately, problems of that scale are rare. More common expensive repairs are in the 4 or low-5 figure range.
  • You could face compliance issues with building codes that could be expensive to fix.
  • Someone could get hurt on your property, resulting in a liability claim. Someone can get hurt and sue you in your rental too, but it seems less likely. This risk can be mitigated by insurance.
That's all I can think of. Overall, the risks of owning seem higher to me, although it is situational. And undoubtedly, the upsides of owning are far higher than renting.
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NearlyRetired
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Re: What are the financial risks of not owning a house?

Post by NearlyRetired »

I think this is the wrong question!

In my opinion, you shouldn't treat a house as an investment. It is a place to live and (possibly) bring a family up in the world.

Consider your property as a sanctuary. What is that worth to you and you family? If you rent, there is no security*. The landlord can evict you at the end of the rental term. Owning you own house removes that risk (obviously not paying rent/mortgage can have the same outcome).

Owning a property financially may get capital growth, although offset against that you also have the maintenance costs which are your responsibility. Whilst maintenance cost are the landlords responsibility, you may have a landlord who will not put things right - then what? When you own your property, then it is yours. You cannot be evicted just because you cannot pay the bills. Don't forget the effect of inflation. If you borrow "X" today, that amount doesn't inflate, you pay it down and the debt reduces in real terms over time. In the UK high inflation was good news for mortgage holders!

When the mortgage is paid off, you own the whole asset, and you are secure. You can utilise that asset for other means if needed. Renting pays all the benefits to the owner, not you.


*I am UK based so this is how it works over here, may be different in the US
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rockstar
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Re: What are the financial risks of not owning a house?

Post by rockstar »

Your housing costs can grow faster than your income. If I had to do it all over again, I would buy a house in my 20s, rather than my 30s.
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Watty
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Re: What are the financial risks of not owning a house?

Post by Watty »

What are the financial risks of not owning a house?
You retire you will need a larger nestegg so you will have more sequence of returns risk and can be hurt more if you have poor investing returns the first five or ten years of retirement.

It helps that I live in a lower cost of living area but with my paid off house I could live on just my Social Security if I really needed to. That would include things like taxes, maintenance, insurance, etc and it would be pretty basic but all my basic needs would be covered.

The home equity can also be used to pay for long term care if we ever need that. This works best if only one of us is surviving when LTC is needed since the house could be sold.
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McGilicutty
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Re: What are the financial risks of not owning a house?

Post by McGilicutty »

When I was younger, I thought I would be a life-long renter but broke down and bought a house in my mid-40's. I used to live in a HCOL area and would move every time (which was pretty much every year) a landlord would increase the rent. I wouldn't want to move every year like that now that I'm older.

The house I bought is fairly new and has been low maintenance for the 3+ years that I've owned it. Also, I like having the extra room. Plus, interest rates have gone down quite a bit since I bought it allowing me to refinance to a nice, low rate.

There are a lot of variables that go into whether one should buy a house or not. For me, it made sense to rent when I was younger and unsettled and now, at this stage of my life, I'm happy to be the owner of a low-maintenance house.
mbasherp
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Re: What are the financial risks of not owning a house?

Post by mbasherp »

I’ll say it again: imputed rent is tax free.

The biggest financial risk of renting is that your alternative doesn’t perform well enough to outperform this no strings attached freebie.

Of course, if renting is that much cheaper than owning, all in, then there you have it. However where I live owning is FAR cheaper than renting. Like all real estate things, it’s local.
000
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Re: What are the financial risks of not owning a house?

Post by 000 »

Number one risk is rents outpacing growth of other assets. Also missing the generous mortgage and tax provisions.

A lot of people who advocate "just rent for life and invest in stocks" are clouded by recency bias.
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VictoriaF
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Re: What are the financial risks of not owning a house?

Post by VictoriaF »

anoop wrote: Thu Oct 15, 2020 1:26 pm
rgs92 wrote: Thu Oct 15, 2020 7:52 am If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
From a financial standpoint it is far less risky to be a renter. The downsides with renting are noise, neighbor issues in traditional apartments, and being asked to move on short notice in the case of house rentals because the owner wants to sell.
I agree that it's less risky to be a renter.

I argue that issues with neighbors are worse when you own. I have been renting all my life and never had issues with my neighbors. But if I had a problem neighbor I could move. When you own, moving away from a bad neighbor is much more difficult.

Victoria
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anoop
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Re: What are the financial risks of not owning a house?

Post by anoop »

VictoriaF wrote: Thu Oct 15, 2020 3:53 pm
anoop wrote: Thu Oct 15, 2020 1:26 pm
rgs92 wrote: Thu Oct 15, 2020 7:52 am If you just decide to never own a house (or any real estate) long term, is that a risky proposition? Thank you.
From a financial standpoint it is far less risky to be a renter. The downsides with renting are noise, neighbor issues in traditional apartments, and being asked to move on short notice in the case of house rentals because the owner wants to sell.
I agree that it's less risky to be a renter.

I argue that issues with neighbors are worse when you own. I have been renting all my life and never had issues with my neighbors. But if I had a problem neighbor I could move. When you own, moving away from a bad neighbor is much more difficult.

Victoria
Thanks for clarifying that. I muddled up the issue of apt/condo/townhouse (more common when renting) vs single family house (more common when owning).
Trev H
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Re: What are the financial risks of not owning a house?

Post by Trev H »

Just an example of what might happen if you did... ps.. I am 59 yo now.

In 1997 I bought 30 acres of land out in the country... cost 29,250.00
In 2001 I built a nice home on the property.. total cost to build 157,000.00 (3800 sf, Brick, large porches, garage, partial basement, upstairs)...

I had it all paid for in 2016. We have been completely debt free since then... and had no debt but the home for many years before that.

Market Value now around 400K.

We plan to sell the big house and 10 acres... and build us a (Nice down size, empty nesters, home) on another part of our land.

We own the land already... if we spend 200K on a smaller more manageable home (which we expect to do)... around 200K additional funds goes into retirement savings.

This is a very nice option to have right here... a few years before I plan to retire.

Trev H
anoop
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Re: What are the financial risks of not owning a house?

Post by anoop »

Trev H wrote: Thu Oct 15, 2020 4:16 pm Just an example of what might happen if you did... ps.. I am 59 yo now.
If only you had bought $AAPL with all that money. :twisted:
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