rent vs buy again
rent vs buy again
Another rent vs buy.
I am selling my house and will make between $450K to $475K.
I am moving to a high cost of living area. Buying a townhouse will be $750K and renting a similar townhouse will be $3200 a month.
1. Does having money to put down factor in the decision at all of which is financially better?
2. There is no real scenario where, if I am pretty sure I will move again in 1 to 5 years that buying is the better option? Unless I want to be a landlord and rent out the house I bought?
3. If I rent I think I would put the profit from the house sale in a high yield savings account, I think the one I have now is around 4.1%. I am a little scared to put the profit in VOO because I am scared of the volatility not knowing when I would need it. What is the school of thought on what to do with that money if I rent?
Side notes, I am retired, no kids at home, we have pensions that cover all expenses, there is no option of staying in my current home, The move will bring me closer to my kids and grandkids. I am not scared of the market; I have a 457 with $1.2million in a 2 fund portfolio 75% in VOO.
I have read the other threads where people say that it really is a lifestyle choice, and in my mind it feels very cool to minimalize my stuff to what can fit into a 20 foot Uhaul truck and move every 2 years to some place new and exciting, but I bet after the first move I would hate it.
I have seen the NY Times calculator, but some of the cost seem over inflated.
I am selling my house and will make between $450K to $475K.
I am moving to a high cost of living area. Buying a townhouse will be $750K and renting a similar townhouse will be $3200 a month.
1. Does having money to put down factor in the decision at all of which is financially better?
2. There is no real scenario where, if I am pretty sure I will move again in 1 to 5 years that buying is the better option? Unless I want to be a landlord and rent out the house I bought?
3. If I rent I think I would put the profit from the house sale in a high yield savings account, I think the one I have now is around 4.1%. I am a little scared to put the profit in VOO because I am scared of the volatility not knowing when I would need it. What is the school of thought on what to do with that money if I rent?
Side notes, I am retired, no kids at home, we have pensions that cover all expenses, there is no option of staying in my current home, The move will bring me closer to my kids and grandkids. I am not scared of the market; I have a 457 with $1.2million in a 2 fund portfolio 75% in VOO.
I have read the other threads where people say that it really is a lifestyle choice, and in my mind it feels very cool to minimalize my stuff to what can fit into a 20 foot Uhaul truck and move every 2 years to some place new and exciting, but I bet after the first move I would hate it.
I have seen the NY Times calculator, but some of the cost seem over inflated.
K.I.S.S.- Keep It Stupid Simple
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Re: rent vs buy again
Buying a townhouse is definitely less attractive than buying SFH. That said, the lesson of the last 5 years was to own and not rent.
If a lot of your existing portfolio is VOO then buying versus renting is a form of diversification in a way. Although the forum tends to lean towards renting over owning, the truth is you cannot live in a stock portfolio.
The thing about most analysis of buy versus rent on the time factor is they will say renting is cheaper if you stay less than X years due to closing costs, etc. The problem with that is even if it worked out to be cheaper by some amount that amount isn't usually life changing. Also usually the savings in rent is from living in shabby apartments, it doesn't usually come with equal quality habitat.
By contrast, what the last 5 years has shown is that being out of the housing market carries a real risk that renters will take a massive hit in a home prices and rents raising scenario, one that is life changing. Its less certain to happen, but its more consequential.
Some are going to point to 2008, but I don't think that is even worth discussing. The market today looks nothing like 2008, almost all money is fixed and there are strict underwriting standards. We aren't going to repeat 2008 without some great depression level crash.
I'd lean towards owning, especially if you have the kids and grand-kids nearby to visit, makes sense to have a place worth entertaining in. But if you choose to rent then keeping that money in VOO is the best insurance against a home price appreciation event like we had the last 5 years.
If a lot of your existing portfolio is VOO then buying versus renting is a form of diversification in a way. Although the forum tends to lean towards renting over owning, the truth is you cannot live in a stock portfolio.
The thing about most analysis of buy versus rent on the time factor is they will say renting is cheaper if you stay less than X years due to closing costs, etc. The problem with that is even if it worked out to be cheaper by some amount that amount isn't usually life changing. Also usually the savings in rent is from living in shabby apartments, it doesn't usually come with equal quality habitat.
By contrast, what the last 5 years has shown is that being out of the housing market carries a real risk that renters will take a massive hit in a home prices and rents raising scenario, one that is life changing. Its less certain to happen, but its more consequential.
Some are going to point to 2008, but I don't think that is even worth discussing. The market today looks nothing like 2008, almost all money is fixed and there are strict underwriting standards. We aren't going to repeat 2008 without some great depression level crash.
I'd lean towards owning, especially if you have the kids and grand-kids nearby to visit, makes sense to have a place worth entertaining in. But if you choose to rent then keeping that money in VOO is the best insurance against a home price appreciation event like we had the last 5 years.
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Re: rent vs buy again
There's the famous NY Times buy-vs-rent calculator, for direct comparison of buying vs. renting costs, for given time-frames and other variables.rogue_economist wrote: ↑Sun Oct 27, 2024 9:50 pm The thing about most analysis of buy versus rent on the time factor is they will say renting is cheaper if you stay less than X years due to closing costs, etc. The problem with that is even if it worked out to be cheaper by some amount that amount isn't usually life changing. Also usually the savings in rent is from living in shabby apartments, it doesn't usually come with equal quality habitat.
By contrast, what the last 5 years has shown is that being out of the housing market carries a real risk that renters will take a massive hit in a home prices and rents raising scenario, one that is life changing. Its less certain to happen, but its more consequential. ...
From personal experience, the primary advantage of renting is that it sidesteps the idiosyncratic risk of either buying a money-pit, or buying in a market that's about to crash (and not soon recover). Most people don't face this problem, but those who do, suffer dearly. The secondary advantage is potentially getting a higher rate of return on the cash that would have gone towards buying. But it sounds like the OP would be keeping the cash as cash, hence with a small rate of return.
I think that ultimately, buying is the reward and the privilege of staying in one place. For a person who's committed to some area, who can avoid a blunder and who doesn't have a screamingly compelling alternative investment, buying sounds compelling. But run that NYT calculator to confirm.
Re: rent vs buy again
I like the Michael Bluejay calculator better than the NY Times one, but it hasn't been updated for newer tax rates, so by default it might over estimate your tax savings buying since tax mortgage interest savings went down in 2017 :
https://michaelbluejay.com/house/rentvsbuy.html
The problem with all these calculator of course is like with stock return calculators, it's all based on what return assumptions you make. If you assume houses will appreciate above inflation buying looks better, if you assume prices will underperform or match inflation buying doesn't look as good.
https://michaelbluejay.com/house/rentvsbuy.html
The problem with all these calculator of course is like with stock return calculators, it's all based on what return assumptions you make. If you assume houses will appreciate above inflation buying looks better, if you assume prices will underperform or match inflation buying doesn't look as good.
Re: rent vs buy again
There is zero reason to buy if you're planning on moving in 1-5 years. Buying with the intention of becoming a landlord in 1-5 years is probably foolish as mortgage rates are trending downward: you'll be left with a high mortgage so making money on a rental will be even more difficult.
I suggest renting, at least for a year, which I would recommend to anyone moving to a new city/place for the first time. There is absolutely no reason you can't bank the money and then re-evaluate your situation.
I'd also note there seems to be a disconnect, since you note you're "not scared of the market" but also that "I am a little scared to put the profit in VOO because I am scared of the volatility."
Which one is it?
I suggest renting, at least for a year, which I would recommend to anyone moving to a new city/place for the first time. There is absolutely no reason you can't bank the money and then re-evaluate your situation.
I'd also note there seems to be a disconnect, since you note you're "not scared of the market" but also that "I am a little scared to put the profit in VOO because I am scared of the volatility."
Which one is it?
Re: rent vs buy again
I know I am trying to figure out what to do with the money. I am not scared of the market when its money I don't really need. I have almost a million dollars in VOO, in my 457 account. But the profit from the house sale I probably will need in less the 5 years.
and
$475K with no tax is just as valuable as what $675 from my 457 getting taxed? maybe more, right?
Seems foolish that I would put the house profit in VOO if I thought I may need it in 2 to 5 years? no?
What is the smart move to do with the house profit?
K.I.S.S.- Keep It Stupid Simple
Re: rent vs buy again
2ball,
A) No.
B) You should rent.
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Re: rent vs buy again
Money is fungible. The house profit is the same as the money you already have, except possibly for tax purposes. You're simply adding to the pile. The benefit of having taxable monies in addition to pre-tax monies (assuming retired) is that it allows you to control your income tax rate by controlling how much pre-tax money you withdraw in retirement. The less you take out, the lower your tax bill.2ball wrote: ↑Mon Oct 28, 2024 10:50 amI know I am trying to figure out what to do with the money. I am not scared of the market when its money I don't really need. I have almost a million dollars in VOO, in my 457 account. But the profit from the house sale I probably will need in less the 5 years.
and
$475K with no tax is just as valuable as what $675 from my 457 getting taxed? maybe more, right?
Seems foolish that I would put the house profit in VOO if I thought I may need it in 2 to 5 years? no?
What is the smart move to do with the house profit?
You keep saying you "have a million dollars" but that's only relevant as it pertains to your expenses. You note that "pensions cover all expenses" and therefore, any excess is not being spent, which means it's growing and compounding. I'd recommend you explore/model Roth conversions, especially before you begin taking social security (though you do not note your age.) If all your 457 money is pre-tax and you're not spending that account down, you may face a large tax bill when you hit RMDs.
If you need more detailed help, I rec. starting a new thread with all your portfolio details.
Re: rent vs buy again
The problem with being out of the housing market is that housing can move up much faster than what you can make in the stock market. Obviously real estate is highly local and it also matters how much leverage (i.e., how long of a loan) you are using and the current interest rates.
In an extreme if you had a $700K house with $70K down and the house increases 20% over the next 3 years, that is another $210K on your $70K. You also have to factor in real estate commissions when you sell, property taxes and maintenance costs but with rentals you do rent increases (in many cases quite high over the last 5 years).
I know in one case, my specific case, I sold a home and it went from $650 to $1M in less than 4 years. I'm not making that up in the stock market.
Now if you buy in an area that isn't good and real estate flounders, which might be much of the US, I only know a few areas that have gone the other way (up and up). No one, despite some comments here, knows for sure what is the most likely scenario in the future, and probably don't know your neighborhood.
I've been looking at a few states and one state the nice areas are still red hot especially for nice homes (i.e., over list price, multiple bids, no inspections, etc.), another is sort of leveling off and a 3rd seems to be all over the map but generally slowing down.
I'm probably biased based on the locations I've lived and where housing has appreciated greatly over the years. I'm sure others may have been burned greatly. I learned my lesson on my first home (bad location).
In an extreme if you had a $700K house with $70K down and the house increases 20% over the next 3 years, that is another $210K on your $70K. You also have to factor in real estate commissions when you sell, property taxes and maintenance costs but with rentals you do rent increases (in many cases quite high over the last 5 years).
I know in one case, my specific case, I sold a home and it went from $650 to $1M in less than 4 years. I'm not making that up in the stock market.
Now if you buy in an area that isn't good and real estate flounders, which might be much of the US, I only know a few areas that have gone the other way (up and up). No one, despite some comments here, knows for sure what is the most likely scenario in the future, and probably don't know your neighborhood.
I've been looking at a few states and one state the nice areas are still red hot especially for nice homes (i.e., over list price, multiple bids, no inspections, etc.), another is sort of leveling off and a 3rd seems to be all over the map but generally slowing down.
I'm probably biased based on the locations I've lived and where housing has appreciated greatly over the years. I'm sure others may have been burned greatly. I learned my lesson on my first home (bad location).
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Re: rent vs buy again
Thanks for all of the reply's.
I am going to rent. I do see it in almost all cases will be cheaper to rent for the first 5 to 11 years depending on the variables.
but mostly I don't think I will be here long term and I don't think I can afford a SFH were I am going to rent.
part B of the question is What do I do with the $475K I hope to make on the profit of my house. In my mind I need to save it for the purchase of the house I am going to buy 2 to 5 years down the road. Where do I put it?
and
the house profit money is completely different then my 457 money right?
if I put that money in a voo I will get taxed on the gains yearly?
there is no scenario where I can put it in a Roth right?
I am going to rent. I do see it in almost all cases will be cheaper to rent for the first 5 to 11 years depending on the variables.
but mostly I don't think I will be here long term and I don't think I can afford a SFH were I am going to rent.
part B of the question is What do I do with the $475K I hope to make on the profit of my house. In my mind I need to save it for the purchase of the house I am going to buy 2 to 5 years down the road. Where do I put it?
and
the house profit money is completely different then my 457 money right?
if I put that money in a voo I will get taxed on the gains yearly?
there is no scenario where I can put it in a Roth right?
K.I.S.S.- Keep It Stupid Simple
Re: rent vs buy again
Again, you need to start a separate post as you seem to not understand the taxation of your investments and this is not the thread to address that.2ball wrote: ↑Mon Oct 28, 2024 5:01 pm Thanks for all of the reply's.
I am going to rent. I do see it in almost all cases will be cheaper to rent for the first 5 to 11 years depending on the variables.
but mostly I don't think I will be here long term and I don't think I can afford a SFH were I am going to rent.
part B of the question is What do I do with the $475K I hope to make on the profit of my house. In my mind I need to save it for the purchase of the house I am going to buy 2 to 5 years down the road. Where do I put it?
and
the house profit money is completely different then my 457 money right?
if I put that money in a voo I will get taxed on the gains yearly?
there is no scenario where I can put it in a Roth right?
But briefly:
Vanguard S&P 500 ETF (VOO) does not distribute capital gains at present. So in that sense, no you are not "taxed on the gains yearly." You are taxed on a) any dividends, at your dividend tax rate assuming it is not zero; and b) any capital gains if you sell appreciated shares, at your capital gains rate. If you put the money in a bank, you'll accrue taxable interest.
You cannot "put it in a Roth" or other retirement account unless you have earned income.
Taxes are a way of life. If you spend the money on, say, rent, then it is untaxed.
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Re: rent vs buy again
As for “getting taxed on gains”, you get taxed on dividends yearly, but the unrealized gains are NOT taxed. That means, if you don’t sell, you won’t be taxed. Once you do sell, some or all shares of VOO, you will be taxed on the gains at that time, so you can often sell some in one year and some in the following years to spread the tax burden and keep you in a lower tax bracket. And you won’t be taxed on the entire value of what you sell, only that actual gains.
If you were to put it all in one or two HYSAs, you would still be taxed on the internet paid every year (1099-INT). Depending on the rates as the years go by, you might also be losing money to inflation.
If you were to put it all in one or two HYSAs, you would still be taxed on the internet paid every year (1099-INT). Depending on the rates as the years go by, you might also be losing money to inflation.
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton
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Re: rent vs buy again
Separate comment on rent vs buy: we rented for two years after moving to a new state (and while looking for a house to purchase). It had its pros and cons.
Pros: if something broke, call the landlord and he’d fix it; yard work was included in the rent so no worries about mowing, trimming or bagging leaves (although we did our own snow blowing); the stock market returns and HYSA rates were well above inflation and doing quite well, so our profits from selling our house continued to grow despite paying rent.
Cons: landlord had no interest in adding some things I would have liked to add, like a water softener system for the extremely hard water, the range was one of the glass top radiant heat stoves (not induction) and I hate those. The landlord liked to mow extremely short and during a particularly hot August our water bill was outrageous because of that (me and a neighbor compared…) So the biggest con was general lack of control over details of the house.
We ended up buying a house in a different state from where we rented, and I’m really glad I’m in control of my house again.
Pros: if something broke, call the landlord and he’d fix it; yard work was included in the rent so no worries about mowing, trimming or bagging leaves (although we did our own snow blowing); the stock market returns and HYSA rates were well above inflation and doing quite well, so our profits from selling our house continued to grow despite paying rent.
Cons: landlord had no interest in adding some things I would have liked to add, like a water softener system for the extremely hard water, the range was one of the glass top radiant heat stoves (not induction) and I hate those. The landlord liked to mow extremely short and during a particularly hot August our water bill was outrageous because of that (me and a neighbor compared…) So the biggest con was general lack of control over details of the house.
We ended up buying a house in a different state from where we rented, and I’m really glad I’m in control of my house again.
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton
Re: rent vs buy again
and you probably ended up ahead money wise by renting instead of buying and selling after 2 years.Shackleton wrote: ↑Tue Oct 29, 2024 7:33 am
We ended up buying a house in a different state from where we rented, and I’m really glad I’m in control of my house again.
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Re: rent vs buy again
Indeed. For people afraid of stocks or bonds, who would keep their money in a savings account, the argument for buying is compelling, because that's the only enduring way that they'll ever earn a decent return. This applies to much of America.junior wrote: ↑Mon Oct 28, 2024 9:08 am The problem with all these calculator of course is like with stock return calculators, it's all based on what return assumptions you make. If you assume houses will appreciate above inflation buying looks better, if you assume prices will underperform or match inflation buying doesn't look as good.
What's distorted our thinking lately, is that housing has been appreciating much faster than inflation, and much faster than any reckoning of historical norms. This results in FOMO and outright sense of desperation, by persons of means, who have been renters-by-choice. Whether this trend continues, or not, has tremendous effect on the utility of our choices.