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

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yeahman
Posts: 190
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Re: Paying for rent is throwing away money...myth?

Post by yeahman » Tue Jun 11, 2019 8:08 pm

rascott wrote:
Tue Jun 11, 2019 3:01 pm
EthanAllen wrote:
Sun Jun 09, 2019 10:37 pm
westie wrote:
Sun Jun 09, 2019 7:44 pm
My parents bought their forever house in 1958. They paid 20K for the house they built and the land cost was 5K (5 acres). The adjacent 5 acre lot was for sale but my dad thought $1K an acre was too much and didn't buy it. When my mom past away in 2007 I sold their home for 2 million. This was in Great Falls Virginia.
Even incredible stories like this deserve pause and reflection, because they show how people dramatically overrate/overestimate the financial benefits of home ownership. Your post makes this sound like an all-time great deal, but here is something to consider:

- If your parents took that 25,000 in 1958 and put it in the stock market and didn’t touch it, a hypothetical S&P fund with dividend reinvestment would have resulted in you having ... MORE THAN 2 MILLION in 2007.

Take out all their ownership and upkeep costs for that house over 50 years. Now take out all the transaction costs of selling the house. Still think it’s an all-time great deal? Maybe less so than it looked when you wrote that post...

Uhhh....you kind of forgot to factor back in what their cost would have been to rent something equivalent for 50 years, no?
$25k in 1958 in the S&P with dividends reinvested would have been $4M in 2007. However, that's only a 1.6 percentage point annualized improvement which wouldn't be enough to cover rent. But then again, we didn't consider maintenance and property taxes.

Probably OP's dad was smart to buy a residence and NOT buy the adjacent lot. That's typically the case. Buy a residence but don't invest in real estate.

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

Post by EthanAllen » Tue Jun 11, 2019 8:22 pm

rascott wrote:
Tue Jun 11, 2019 3:01 pm
EthanAllen wrote:
Sun Jun 09, 2019 10:37 pm
westie wrote:
Sun Jun 09, 2019 7:44 pm
My parents bought their forever house in 1958. They paid 20K for the house they built and the land cost was 5K (5 acres). The adjacent 5 acre lot was for sale but my dad thought $1K an acre was too much and didn't buy it. When my mom past away in 2007 I sold their home for 2 million. This was in Great Falls Virginia.
Even incredible stories like this deserve pause and reflection, because they show how people dramatically overrate/overestimate the financial benefits of home ownership. Your post makes this sound like an all-time great deal, but here is something to consider:

- If your parents took that 25,000 in 1958 and put it in the stock market and didn’t touch it, a hypothetical S&P fund with dividend reinvestment would have resulted in you having ... MORE THAN 2 MILLION in 2007.

Take out all their ownership and upkeep costs for that house over 50 years. Now take out all the transaction costs of selling the house. Still think it’s an all-time great deal? Maybe less so than it looked when you wrote that post...

Uhhh....you kind of forgot to factor back in what their cost would have been to rent something equivalent for 50 years, no?
Continue reading the rest of the thread for the broader point. I didn’t “forget” to factor that in ... I was just using those numbers in isolation to make the broader point about not using home buying and selling prices as the be-all-and-end-all. I also didn’t include decades of interest payments on the house, amongst countless other factors. But that’s the point...saying you bought a house for X and sold it for Y is a terrible way to do the analysis.

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

Post by rascott » Tue Jun 11, 2019 8:28 pm

EthanAllen wrote:
Tue Jun 11, 2019 8:22 pm
rascott wrote:
Tue Jun 11, 2019 3:01 pm
EthanAllen wrote:
Sun Jun 09, 2019 10:37 pm
westie wrote:
Sun Jun 09, 2019 7:44 pm
My parents bought their forever house in 1958. They paid 20K for the house they built and the land cost was 5K (5 acres). The adjacent 5 acre lot was for sale but my dad thought $1K an acre was too much and didn't buy it. When my mom past away in 2007 I sold their home for 2 million. This was in Great Falls Virginia.
Even incredible stories like this deserve pause and reflection, because they show how people dramatically overrate/overestimate the financial benefits of home ownership. Your post makes this sound like an all-time great deal, but here is something to consider:

- If your parents took that 25,000 in 1958 and put it in the stock market and didn’t touch it, a hypothetical S&P fund with dividend reinvestment would have resulted in you having ... MORE THAN 2 MILLION in 2007.

Take out all their ownership and upkeep costs for that house over 50 years. Now take out all the transaction costs of selling the house. Still think it’s an all-time great deal? Maybe less so than it looked when you wrote that post...

Uhhh....you kind of forgot to factor back in what their cost would have been to rent something equivalent for 50 years, no?
Continue reading the rest of the thread for the broader point. I didn’t “forget” to factor that in ... I was just using those numbers in isolation to make the broader point about not using home buying and selling prices as the be-all-and-end-all. I also didn’t include decades of interest payments on the house, amongst countless other factors. But that’s the point...saying you bought a house for X and sold it for Y is a terrible way to do the analysis.

Yes agreed...if you are looking at it as an investment. But it's not.... Housing is a life expense. Even if your net real return was 0%....how far does that beat renting for 50 years? You've basically lived for free in their situation (actually better than free....in a pretty great house).

Larger point....if you are going to live in one place for half a century...it's basically impossible to justify renting. If you are going to move every 5-7 years, then yeah it makes sense. Same could be said about buying equities.

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

Post by rascott » Tue Jun 11, 2019 8:41 pm

JoMoney wrote:
Tue Jun 11, 2019 7:51 am
Nate79 wrote:
Tue Jun 11, 2019 6:47 am
randomguy wrote:
Mon Jun 10, 2019 10:58 pm
KlangFool wrote:
Mon Jun 10, 2019 6:48 pm
rossbow,

And, why would that matter to me? I bought the house to live and stabilize my housing expense. The house's value could be zero and I still make money from my imputed rent. Please note that I consider the whole PITI as housing expense: P = Principal, I = Interest.

This house is "cash flow positive". A big lesson that I learned from "Rich Dad Poor Dad".

KlangFool
Your house WAS cash flow positive. After the rents drop to account for the new lower house prices, you are now cash flow negative. If we lived in world were rents were disconnected from house prices, investing in real estate would be a lot easier:) Note house prices and rental prices can often disconnect for a while as they are driven by slightly different forces.


In the end this is a choice that often doesn't matter. You get some big losers (people that buy are market tops, move a lot), and winners (people that live there 20 years or large appreciation) and a lot that end up in roughly the same spot.
When housing prices crashed in the last recession rents did not also crash. They barely blipped and in many areas they continues to increase because there was more demand for rent as peoples homes were being foreclosed. Rent and home prices generally move together but home prices are much more volatile whereas rent continues to increase at or above inflation rate.
What did happen, was an all time high in rental vacancies, and a deluge of properties where leveraged owners could not get people into leases (turning what might have been cash-flow positive to negative). Being ones own landlord means you don't have to find a tenant, but can also be an anchor preventing from moving easily.

I landlorded right through 2008-2011....it was the best time I ever had being a landlord. The demand today is weak compared to that time point.....all my good tenants have gone onto buy houses, leaving a less desirable pool. Outside of the extremes of people going homeless or moving in with family.... people still needed to live somewhere. I never dropped rent during that period $1.

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

Post by protagonist » Tue Jun 11, 2019 10:32 pm

quantAndHold wrote:
Tue Jun 11, 2019 5:26 pm
protagonist wrote:
Tue Jun 11, 2019 12:27 pm
I inherited a home from my mom in FL in 2005, at which time it was appraised at $260,000. That is, in 2005 dollars.
By 2010 I would have been lucky to sell it for $80K.
I finally sold it in 2018 for $168,000 before paying realtor fees. That was pretty much market value.
I did have positive cash flow in the interim but lots of headaches being a landlord.

Any more questions?
How much did your mom pay for it?
She bought it in 1980....paid about what it was worth in 2010, but in 1980 dollars. I forget exactly, but it was around $80K.
"$80,000 in 1980 is equivalent in purchasing power to about $243,793.04 in 2018".
So if she sold the property instead of me last year, she would have effectively lost about $75K in 2018 dollars (real terms) when she sold it, while paying to maintain the property for 38 years. Fortunately I didn't buy it, and the cost basis corrected to $260K when I inherited it.
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*

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

Post by FIREchief » Tue Jun 11, 2019 11:12 pm

michaeljc70 wrote:
Tue Jun 11, 2019 8:00 pm
FIREchief wrote:
Tue Jun 11, 2019 7:47 pm
brianH wrote:
Tue Jun 11, 2019 12:26 pm
As a renter, you have to always consider that the end of the lease term may be the end of your stay at that property. Unless you are able to do a long-term lease, which are typically pretty rare, you could be facing quite a bit of disruption.
Not really true for us who rent apartments (and pay our rent each month). 8-)
So if you pay your rent on time in a rapidly appreciating area, they won't raise your rent?
Nah... I just don't consider a market driven rent increase to constitute the "end of your stay at that property." It's just business.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by quantAndHold » Tue Jun 11, 2019 11:17 pm

protagonist wrote:
Tue Jun 11, 2019 10:32 pm
quantAndHold wrote:
Tue Jun 11, 2019 5:26 pm
protagonist wrote:
Tue Jun 11, 2019 12:27 pm
I inherited a home from my mom in FL in 2005, at which time it was appraised at $260,000. That is, in 2005 dollars.
By 2010 I would have been lucky to sell it for $80K.
I finally sold it in 2018 for $168,000 before paying realtor fees. That was pretty much market value.
I did have positive cash flow in the interim but lots of headaches being a landlord.

Any more questions?
How much did your mom pay for it?
She bought it in 1980....paid about what it was worth in 2010, but in 1980 dollars. I forget exactly, but it was around $80K.
"$80,000 in 1980 is equivalent in purchasing power to about $243,793.04 in 2018".
So if she sold the property instead of me last year, she would have effectively lost about $75K in 2018 dollars (real terms) when she sold it, while paying to maintain the property for 38 years. Fortunately I didn't buy it, and the cost basis corrected to $260K when I inherited it.
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
Did she actually pay $80,000 cash for the place in 1980, or did she finance? If she put 10 or 20% down and financed the rest, then the alternative investment is $8-16k, not $80k. She also had a place to live for 25 years.

If it was such a bad deal, why didn’t you sell it in 2005? Oh, wait. Positive cash flow.

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

Post by SoonerD » Tue Jun 11, 2019 11:34 pm

Grt2bOutdoors wrote:
Sat Jun 08, 2019 10:22 pm
jabberwockOG wrote:
Sat Jun 08, 2019 10:09 pm
If you want to live in a safe very desirable area it makes sense to buy a home instead of renting. Rents in safe and very desirable areas will never stop increasing because there will almost always be increasing demand. Owning a home in safe and desirable places means a home in that area is almost certainly going to significantly appreciate in value. Pretty simple concept here - in general wealthy people earn interest, while the poor pay interest just like wealthy people own real estate, while the poor pay rent.
Good neighborhoods deteriorate, bad neighborhoods gentrify. Wealthy people outside of family money become wealthy because they take risks others won't.
Grt2bOutdoors, do you mean to say "very few or few or some or most or nearly all or all" neighborhoods deteriorate/gentrify? Perhaps you live in a special place where good goes bad and bad gets good on a regular basis?

international001
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Re: Paying for rent is throwing away money...myth?

Post by international001 » Wed Jun 12, 2019 6:32 am

I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage. With some additional risk, makes your returns so much better

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

Post by EthanAllen » Wed Jun 12, 2019 6:35 am

international001 wrote:
Wed Jun 12, 2019 6:32 am
I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage.
Depending on economic climate, that’s as much of a bug as a feature.

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

Post by tea_pirate » Wed Jun 12, 2019 7:22 am

international001 wrote:
Wed Jun 12, 2019 6:32 am
I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage. With some additional risk, makes your returns so much better
It certainly is. I know several people making around $65k that were approved to buy $350k-$400k homes in the past year (5-6x income with minimal down, around 6% interest on average). Talk about fishing the bottom of the barrel.

This type of lending is certainly sustainable and good for the housing market long-term!

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

Post by JoMoney » Wed Jun 12, 2019 8:16 am

international001 wrote:
Wed Jun 12, 2019 6:32 am
I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage. With some additional risk, makes your returns so much better
It's not just "Some risk" making it "so much better", leverage works both ways up and down. However you want to measure a unit of risk, your return is reduced by the amount of interest payment making the risk adjusted return worse.
You also trade the advantage of the "imputed rent" on your equity in your home, which is essentially unlimited (which allows for other income to be saved/invested, or other investments to not be cased out), instead you might get a limited mortgage interest deduction (not owing taxes on the money you give a bank).

Anyways, I did bring up the "advantage" that is government subsidized home loans in the U.S. several pages back. You won't find 30 year fixed rates or rates as low as they are in the U.S. elsewhere.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

michaeljc70
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Re: Paying for rent is throwing away money...myth?

Post by michaeljc70 » Wed Jun 12, 2019 8:43 am

FIREchief wrote:
Tue Jun 11, 2019 11:12 pm
michaeljc70 wrote:
Tue Jun 11, 2019 8:00 pm
FIREchief wrote:
Tue Jun 11, 2019 7:47 pm
brianH wrote:
Tue Jun 11, 2019 12:26 pm
As a renter, you have to always consider that the end of the lease term may be the end of your stay at that property. Unless you are able to do a long-term lease, which are typically pretty rare, you could be facing quite a bit of disruption.
Not really true for us who rent apartments (and pay our rent each month). 8-)
So if you pay your rent on time in a rapidly appreciating area, they won't raise your rent?
Nah... I just don't consider a market driven rent increase to constitute the "end of your stay at that property." It's just business.
The point is, and I'm sure you know this, that beyond the term of your lease you have no control. You can be booted out for any number of reasons that have nothing to do with you paying your rent on time. How often does that happen? Probably not that often. But I have had friends booted out at the end of the lease because the place was sold.

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

Post by alfaspider » Wed Jun 12, 2019 8:51 am

michaeljc70 wrote:
Wed Jun 12, 2019 8:43 am
FIREchief wrote:
Tue Jun 11, 2019 11:12 pm
michaeljc70 wrote:
Tue Jun 11, 2019 8:00 pm
FIREchief wrote:
Tue Jun 11, 2019 7:47 pm
brianH wrote:
Tue Jun 11, 2019 12:26 pm
As a renter, you have to always consider that the end of the lease term may be the end of your stay at that property. Unless you are able to do a long-term lease, which are typically pretty rare, you could be facing quite a bit of disruption.
Not really true for us who rent apartments (and pay our rent each month). 8-)
So if you pay your rent on time in a rapidly appreciating area, they won't raise your rent?
Nah... I just don't consider a market driven rent increase to constitute the "end of your stay at that property." It's just business.
The point is, and I'm sure you know this, that beyond the term of your lease you have no control. You can be booted out for any number of reasons that have nothing to do with you paying your rent on time. How often does that happen? Probably not that often. But I have had friends booted out at the end of the lease because the place was sold.
This is especially common around here, where rental houses (as opposed to apartment complexes) are rarely rented for more than a few years. People rent a house out before flipping it to a developer or due to a temporary work relocation. It's extremely rare to find a place you could stay in for 5+ years without getting booted out eventually.

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

Post by mhop » Wed Jun 12, 2019 9:17 am

alfaspider wrote:
Wed Jun 12, 2019 8:51 am
michaeljc70 wrote:
Wed Jun 12, 2019 8:43 am
FIREchief wrote:
Tue Jun 11, 2019 11:12 pm
michaeljc70 wrote:
Tue Jun 11, 2019 8:00 pm
FIREchief wrote:
Tue Jun 11, 2019 7:47 pm


Not really true for us who rent apartments (and pay our rent each month). 8-)
So if you pay your rent on time in a rapidly appreciating area, they won't raise your rent?
Nah... I just don't consider a market driven rent increase to constitute the "end of your stay at that property." It's just business.
The point is, and I'm sure you know this, that beyond the term of your lease you have no control. You can be booted out for any number of reasons that have nothing to do with you paying your rent on time. How often does that happen? Probably not that often. But I have had friends booted out at the end of the lease because the place was sold.
This is especially common around here, where rental houses (as opposed to apartment complexes) are rarely rented for more than a few years. People rent a house out before flipping it to a developer or due to a temporary work relocation. It's extremely rare to find a place you could stay in for 5+ years without getting booted out eventually.
Last apartment I had was 970 sqft for $1000. I was asked to move into another unit running $1200ish because they were renovating to capture higher rents. It was at this time where I bought my 1600 sqft house with PITI of $924 (this year, 5 years later). Even at the apartment level it isn't always easy to stay long term, I lasted 3 years there with a $100 increase after my first 2 year contract ran out.

People talk about right-sizing the space they live in, clearly I could've stayed, but I chose to right-size my payment first.

Edit: looking at the unit now, it's going for $1429 with a 13 month lease.
Last edited by mhop on Wed Jun 12, 2019 9:59 am, edited 2 times in total.

international001
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Re: Paying for rent is throwing away money...myth?

Post by international001 » Wed Jun 12, 2019 9:54 am

JoMoney wrote:
Wed Jun 12, 2019 8:16 am
international001 wrote:
Wed Jun 12, 2019 6:32 am
I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage. With some additional risk, makes your returns so much better
It's not just "Some risk" making it "so much better", leverage works both ways up and down. However you want to measure a unit of risk, your return is reduced by the amount of interest payment making the risk adjusted return worse.
You also trade the advantage of the "imputed rent" on your equity in your home, which is essentially unlimited (which allows for other income to be saved/invested, or other investments to not be cased out), instead you might get a limited mortgage interest deduction (not owing taxes on the money you give a bank).

Anyways, I did bring up the "advantage" that is government subsidized home loans in the U.S. several pages back. You won't find 30 year fixed rates or rates as low as they are in the U.S. elsewhere.
Sure, leverage works both ways. But in normal situations it works on favor of the owner. Mortgage rates are usually lower than the rental income return

Do you know that in Europe you can get today a 30 year for 2.20%?
I never understood why, but people often get houses that are much more expensive compared to their income (relative to US standards)

michaeljc70
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Re: Paying for rent is throwing away money...myth?

Post by michaeljc70 » Wed Jun 12, 2019 10:03 am

international001 wrote:
Wed Jun 12, 2019 9:54 am
JoMoney wrote:
Wed Jun 12, 2019 8:16 am
international001 wrote:
Wed Jun 12, 2019 6:32 am
I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage. With some additional risk, makes your returns so much better
It's not just "Some risk" making it "so much better", leverage works both ways up and down. However you want to measure a unit of risk, your return is reduced by the amount of interest payment making the risk adjusted return worse.
You also trade the advantage of the "imputed rent" on your equity in your home, which is essentially unlimited (which allows for other income to be saved/invested, or other investments to not be cased out), instead you might get a limited mortgage interest deduction (not owing taxes on the money you give a bank).

Anyways, I did bring up the "advantage" that is government subsidized home loans in the U.S. several pages back. You won't find 30 year fixed rates or rates as low as they are in the U.S. elsewhere.
Sure, leverage works both ways. But in normal situations it works on favor of the owner. Mortgage rates are usually lower than the rental income return

Do you know that in Europe you can get today a 30 year for 2.20%?
I never understood why, but people often get houses that are much more expensive compared to their income (relative to US standards)
Is that a 2.2% fixed for 30 years?

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

Post by Quirkz » Wed Jun 12, 2019 10:33 am

FIREchief wrote:
Tue Jun 11, 2019 7:46 pm
crit wrote:
Tue Jun 11, 2019 3:31 pm
Rent is a floor on expenses, a mortgage may be a ceiling
Isn't it the other way around? :confused
Month-to-month, no. Rent is a fixed cost, while the homeowner pays mortgage + anything else that might go wrong, which could be nothing, and could be everything.

Year-over-year, it's a somewhat different story, because rent can go up, but the mortgage (disregarding or averaging out repairs for the moment) will hold steady.

I swear, half of the problem behind threads like this is people exclusively fixate on one or the other, and either don't see both types of argument at all, or their personal worries/blind sides heavily overweight one of the two.

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

Post by simplesimon » Wed Jun 12, 2019 10:35 am

Quirkz wrote:
Wed Jun 12, 2019 10:33 am
I swear, half of the problem behind threads like this is people exclusively fixate on one or the other, and either don't see both types of argument at all, or their personal worries/blind sides heavily overweight one of the two.
People don't want to feel bad about the choices they've made.

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

Post by FIREchief » Wed Jun 12, 2019 11:25 am

Quirkz wrote:
Wed Jun 12, 2019 10:33 am
FIREchief wrote:
Tue Jun 11, 2019 7:46 pm
crit wrote:
Tue Jun 11, 2019 3:31 pm
Rent is a floor on expenses, a mortgage may be a ceiling
Isn't it the other way around? :confused
I swear, half of the problem behind threads like this is people exclusively fixate on one or the other, and either don't see both types of argument at all, or their personal worries/blind sides heavily overweight one of the two.
Yeah, but it looks like this guy was looking at both sides....
FIREchief wrote:
Mon Jun 10, 2019 6:39 pm
Young/mobile/career focused/single: Renting is likely a clear winner
Stable career/family/school aged kids: Owning likely a clear winner in many situations
Kids gone/FIREd/getting older: Renting can be a clear winner in many situations
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by FIREchief » Wed Jun 12, 2019 11:28 am

michaeljc70 wrote:
Wed Jun 12, 2019 8:43 am
FIREchief wrote:
Tue Jun 11, 2019 11:12 pm
michaeljc70 wrote:
Tue Jun 11, 2019 8:00 pm
FIREchief wrote:
Tue Jun 11, 2019 7:47 pm
brianH wrote:
Tue Jun 11, 2019 12:26 pm
As a renter, you have to always consider that the end of the lease term may be the end of your stay at that property. Unless you are able to do a long-term lease, which are typically pretty rare, you could be facing quite a bit of disruption.
Not really true for us who rent apartments (and pay our rent each month). 8-)
So if you pay your rent on time in a rapidly appreciating area, they won't raise your rent?
Nah... I just don't consider a market driven rent increase to constitute the "end of your stay at that property." It's just business.
The point is, and I'm sure you know this, that beyond the term of your lease you have no control. You can be booted out for any number of reasons that have nothing to do with you paying your rent on time.
Such as?
How often does that happen? Probably not that often. But I have had friends booted out at the end of the lease because the place was sold.

I highly doubt that if my apartment complex is sold I'll be "booted out."
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

michaeljc70
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Re: Paying for rent is throwing away money...myth?

Post by michaeljc70 » Wed Jun 12, 2019 11:31 am

FIREchief wrote:
Mon Jun 10, 2019 6:39 pm
Young/mobile/career focused/single: Renting is likely a clear winner
Stable career/family/school aged kids: Owning likely a clear winner in many situations
Kids gone/FIREd/getting older: Renting can be a clear winner in many situations
I agree with the first two. The 3rd can get dicier. I sure wouldn't want to be 80 and kicked out of my apartment and be forced to move at that age.

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

Post by FIREchief » Wed Jun 12, 2019 11:33 am

michaeljc70 wrote:
Wed Jun 12, 2019 11:31 am
FIREchief wrote:
Mon Jun 10, 2019 6:39 pm
Young/mobile/career focused/single: Renting is likely a clear winner
Stable career/family/school aged kids: Owning likely a clear winner in many situations
Kids gone/FIREd/getting older: Renting can be a clear winner in many situations
I agree with the first two. The 3rd can get dicier. I sure wouldn't want to be 80 and kicked out of my apartment and be forced to move at that age.
Why would an 80 year old get kicked out of an apartment?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by Quirkz » Wed Jun 12, 2019 11:43 am

FIREchief wrote:
Wed Jun 12, 2019 11:25 am

Yeah, but it looks like this guy was looking at both sides....
FIREchief wrote:
Mon Jun 10, 2019 6:39 pm
Young/mobile/career focused/single: Renting is likely a clear winner
Stable career/family/school aged kids: Owning likely a clear winner in many situations
Kids gone/FIREd/getting older: Renting can be a clear winner in many situations
Sure. You get some voices of reason, half-drowned-out by the extremists, who trigger avalanches of counter-arguments with each heavily biased point.

Oh, wait, I think I just discovered the internet.

Anyway, I wasn't picking on anyone in particular or condemning the whole thread, just commenting on the general flow of this type of question. "Rent or Buy?" is like "cat or dog?", but more intense because money is involved.

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

Post by TropikThunder » Wed Jun 12, 2019 11:44 am

FIREchief wrote:
Wed Jun 12, 2019 11:33 am
michaeljc70 wrote:
Wed Jun 12, 2019 11:31 am
I sure wouldn't want to be 80 and kicked out of my apartment and be forced to move at that age.
Why would an 80 year old get kicked out of an apartment?
I don’t know if your being intentionally obtuse, or if it just never occurred to you that a landlord is under no obligation to renew a lease, even for a trouble-free tenant who always paid on time. Management needs a reason to evict someone, but it doesn’t need a reason to decline to renew a lease (they just need to give notice). While michaeljc70 acknowledges that the risk is likely low, it’s not zero.
Quirkz wrote:
Wed Jun 12, 2019 11:43 am
"Rent or Buy?" is like "cat or dog?", but more intense because money is involved.
Dog, clearly. :P

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

Post by FIREchief » Wed Jun 12, 2019 12:02 pm

TropikThunder wrote:
Wed Jun 12, 2019 11:44 am
FIREchief wrote:
Wed Jun 12, 2019 11:33 am
michaeljc70 wrote:
Wed Jun 12, 2019 11:31 am
I sure wouldn't want to be 80 and kicked out of my apartment and be forced to move at that age.
Why would an 80 year old get kicked out of an apartment?
I don’t know if your being intentionally obtuse, or if it just never occurred to you that a landlord is under no obligation to renew a lease, even for a trouble-free tenant who always paid on time. Management needs a reason to evict someone, but it doesn’t need a reason to decline to renew a lease (they just need to give notice). While michaeljc70 acknowledges that the risk is likely low, it’s not zero.
I'm well South of 80, but well prepared for that phase of life. We've intentionally downsized into a two bedroom apartment. Unless we re-clutter (which I am hellbent against), the thought of moving is of little consequence. I'm guessing if and when I approach that age, we'll move into a community that is geared towards that age group. This is a huge advantage of renting, not a concern. Besides, I see many elderly in my complex and the staff seems to love them. I just really can't envision any of them getting "booted out" for reasons that, as of yet, nobody has outlined.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by alfredwallace » Wed Jun 12, 2019 12:19 pm

My first post--I thought it would be about laying bare my financial soul, but I guess not. I don't think it matters if you buy or rent. They are about the same. Here is my logic. Feel free to beat it up.

Let's say Mr. Buy and Mr. Rent are both the same age, 26 and they both have 60K saved up. Mr. Rent sticks his money in the stock market and decides to rent. Mr. Buy puts his money down as 20% on a 300K house and finances the rest with a 30 year mortgage. Both guys live in the same neighborhood with the same lifestyle. Mr. Rent stuck all his money in the S&P 500. Both pay the exact same amount on housing. But wait, what about insurance, property tax and maintenance that Mr. Rent doesn't have to pay? He does. Whenever those expenses go up, the landlord raises the rent to pay for them so Mr. Rent is still paying Mr. Landlords maintenance, property tax, and mortgage cost. After 30 years, Mr. Buy has his mortgage paid off. Mr. Rent now has about 487K over 30 years at 7% annual return from the S&P. Mr. Buy doesn't have that, but he has relieved himself of $1135 in monthly mortgage payments that Mr Rent will still be paying until he dies. Mr. Rent and Mr. Buy are both now 56 years old. Mr. Rent continues to rent for another 30 years. Mr. Buy lives in his house and begins investing the 1135/month into the S&P. After 60 years, Mr. Rent's initial 60K has now grown to 3,952,651 dollars! Mr. Buy, putting his 1135/month into the S&P for 30 years now has 1,384,675 dollars and a house that has increased in value at 3.7% a year over that 60 years and is now worth 2,752,781 dollars (note: national average is 5.4% but doesn't account for increasing home sizes--3.7% annual does). Combined Mr. Buy now has 4,137,456 dollars in assets compared to Mr. Rent's 3,952,651 dollars at the age of 86.

In other words, with the unknown risks in stock market gains and unknown risks in home appreciation increases, it's a giant crap shoot that ends up the same. Mr. Buy takes a 6% commission haircut selling the house to end up in the same place as Mr. Rent which puts them within spitting distance of each other regarding assets. This means that the real factor in the decision beyond mobility and lifestyle considerations, is getting out your ouja board and comparing the stock market payoffs compared to your local housing market over a 60 year period.

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

Post by FIREchief » Wed Jun 12, 2019 1:41 pm

alfredwallace wrote:
Wed Jun 12, 2019 12:19 pm
My first post--I thought it would be about laying bare my financial soul, but I guess not. I don't think it matters if you buy or rent. They are about the same. Here is my logic. Feel free to beat it up.

Let's say Mr. Buy and Mr. Rent are both the same age, 26 and they both have 60K saved up. Mr. Rent sticks his money in the stock market and decides to rent. Mr. Buy puts his money down as 20% on a 300K house and finances the rest with a 30 year mortgage. Both guys live in the same neighborhood with the same lifestyle. Mr. Rent stuck all his money in the S&P 500. Both pay the exact same amount on housing. But wait, what about insurance, property tax and maintenance that Mr. Rent doesn't have to pay? He does. Whenever those expenses go up, the landlord raises the rent to pay for them so Mr. Rent is still paying Mr. Landlords maintenance, property tax, and mortgage cost. After 30 years, Mr. Buy has his mortgage paid off. Mr. Rent now has about 487K over 30 years at 7% annual return from the S&P. Mr. Buy doesn't have that, but he has relieved himself of $1135 in monthly mortgage payments that Mr Rent will still be paying until he dies. Mr. Rent and Mr. Buy are both now 56 years old. Mr. Rent continues to rent for another 30 years. Mr. Buy lives in his house and begins investing the 1135/month into the S&P. After 60 years, Mr. Rent's initial 60K has now grown to 3,952,651 dollars! Mr. Buy, putting his 1135/month into the S&P for 30 years now has 1,384,675 dollars and a house that has increased in value at 3.7% a year over that 60 years and is now worth 2,752,781 dollars (note: national average is 5.4% but doesn't account for increasing home sizes--3.7% annual does). Combined Mr. Buy now has 4,137,456 dollars in assets compared to Mr. Rent's 3,952,651 dollars at the age of 86.

In other words, with the unknown risks in stock market gains and unknown risks in home appreciation increases, it's a giant crap shoot that ends up the same. Mr. Buy takes a 6% commission haircut selling the house to end up in the same place as Mr. Rent which puts them within spitting distance of each other regarding assets. This means that the real factor in the decision beyond mobility and lifestyle considerations, is getting out your ouja board and comparing the stock market payoffs compared to your local housing market over a 60 year period.
Great post!! (welcome to the forum)

However, you left out the part about Mrs. Buy wanting to update the bathrooms and kitchen after 15 years. You also left out the part about Mr. Buy not living until 86 because of the stresses of each of those remodeling projects and the extra hours at work to pay for them. I think Mr. Rent just moved into a newer place after 15 years. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by H-Town » Wed Jun 12, 2019 2:19 pm

alfredwallace wrote:
Wed Jun 12, 2019 12:19 pm
My first post--I thought it would be about laying bare my financial soul, but I guess not. I don't think it matters if you buy or rent. They are about the same. Here is my logic. Feel free to beat it up.

Let's say Mr. Buy and Mr. Rent are both the same age, 26 and they both have 60K saved up. Mr. Rent sticks his money in the stock market and decides to rent. Mr. Buy puts his money down as 20% on a 300K house and finances the rest with a 30 year mortgage. Both guys live in the same neighborhood with the same lifestyle. Mr. Rent stuck all his money in the S&P 500. Both pay the exact same amount on housing. But wait, what about insurance, property tax and maintenance that Mr. Rent doesn't have to pay? He does. Whenever those expenses go up, the landlord raises the rent to pay for them so Mr. Rent is still paying Mr. Landlords maintenance, property tax, and mortgage cost. After 30 years, Mr. Buy has his mortgage paid off. Mr. Rent now has about 487K over 30 years at 7% annual return from the S&P. Mr. Buy doesn't have that, but he has relieved himself of $1135 in monthly mortgage payments that Mr Rent will still be paying until he dies. Mr. Rent and Mr. Buy are both now 56 years old. Mr. Rent continues to rent for another 30 years. Mr. Buy lives in his house and begins investing the 1135/month into the S&P. After 60 years, Mr. Rent's initial 60K has now grown to 3,952,651 dollars! Mr. Buy, putting his 1135/month into the S&P for 30 years now has 1,384,675 dollars and a house that has increased in value at 3.7% a year over that 60 years and is now worth 2,752,781 dollars (note: national average is 5.4% but doesn't account for increasing home sizes--3.7% annual does). Combined Mr. Buy now has 4,137,456 dollars in assets compared to Mr. Rent's 3,952,651 dollars at the age of 86.

In other words, with the unknown risks in stock market gains and unknown risks in home appreciation increases, it's a giant crap shoot that ends up the same. Mr. Buy takes a 6% commission haircut selling the house to end up in the same place as Mr. Rent which puts them within spitting distance of each other regarding assets. This means that the real factor in the decision beyond mobility and lifestyle considerations, is getting out your ouja board and comparing the stock market payoffs compared to your local housing market over a 60 year period.
Just want to add 3 things:

1) We all tend to get more house than we need. For Mr. and Mrs. Buy, it's expensive to downsize. It's even more expensive to keep that big house for 30 year mortgage. Unless they're making top 1 percent money, they'll have a hard time to save and be financial independent. For Mr. and Mrs. Rent, they can fix that mistake in the next lease.

2) In the event of a divorce, Mr. and Mrs. Buy will have an expensive fight over the house. Mr. and Mrs. Rent will have one less thing to worry about.

3) Fees and expenses matter. Real estate transaction fees and mortgage interest are material numbers. Keep those low will help you a long way in home ownership journey.

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

Post by quantAndHold » Wed Jun 12, 2019 2:24 pm

FIREchief wrote:
Wed Jun 12, 2019 12:02 pm
TropikThunder wrote:
Wed Jun 12, 2019 11:44 am
FIREchief wrote:
Wed Jun 12, 2019 11:33 am
michaeljc70 wrote:
Wed Jun 12, 2019 11:31 am
I sure wouldn't want to be 80 and kicked out of my apartment and be forced to move at that age.
Why would an 80 year old get kicked out of an apartment?
I don’t know if your being intentionally obtuse, or if it just never occurred to you that a landlord is under no obligation to renew a lease, even for a trouble-free tenant who always paid on time. Management needs a reason to evict someone, but it doesn’t need a reason to decline to renew a lease (they just need to give notice). While michaeljc70 acknowledges that the risk is likely low, it’s not zero.
I'm well South of 80, but well prepared for that phase of life. We've intentionally downsized into a two bedroom apartment. Unless we re-clutter (which I am hellbent against), the thought of moving is of little consequence. I'm guessing if and when I approach that age, we'll move into a community that is geared towards that age group. This is a huge advantage of renting, not a concern. Besides, I see many elderly in my complex and the staff seems to love them. I just really can't envision any of them getting "booted out" for reasons that, as of yet, nobody has outlined.
Pretty much everyone I know who has been a long term renter has been booted out at some point, sometimes from multiple places in a short period of time. Usually because the building has been sold and the new owner either wants to convert to condos, or renovate so that they can double the rent.

I’ve also known people who’ve been kicked out so that the landlord or one of their family members could live in their apartment, and one guy whose building survived Hurricane Iniki, but practically nothing else did, so the landlord kicked out all the tenants so that he could move his entire extended family in.

Maybe that doesn’t happen other places. It happens here every time housing prices go up.

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

Post by flyphotoguy » Wed Jun 12, 2019 2:59 pm

H-Town wrote:
Wed Jun 12, 2019 2:19 pm
alfredwallace wrote:
Wed Jun 12, 2019 12:19 pm
My first post--I thought it would be about laying bare my financial soul, but I guess not. I don't think it matters if you buy or rent. They are about the same. Here is my logic. Feel free to beat it up......

Just want to add 3 things:

1) We all tend to get more house than we need. For Mr. and Mrs. Buy, it's expensive to downsize. It's even more expensive to keep that big house for 30 year mortgage. Unless they're making top 1 percent money, they'll have a hard time to save and be financial independent. For Mr. and Mrs. Rent, they can fix that mistake in the next lease.

2) In the event of a divorce, Mr. and Mrs. Buy will have an expensive fight over the house. Mr. and Mrs. Rent will have one less thing to worry about.

3) Fees and expenses matter. Real estate transaction fees and mortgage interest are material numbers. Keep those low will help you a long way in home ownership journey.
Wow! Well #2 is a big one since what's the divorce rate now? is it close to 50%. Didn't think about this but like most I agree it's a lifestyle/numbers game.

We were previously renting for $1.4K/mo at a nice apartment complex, but year by year the rent went up, and up since I live in a HCOL every complex is priced the same. So when it hit >$2K we decided to buy since that's pretty much the cost of a 2 bedroom condo here. Happy with the condo purchase and never have a problem renting and investing the rest, but life happens so choose what you find matches your lifestyle. But going back, #2 above can't be discounted since it happens often and will impact everything in your life.

michaeljc70
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Re: Paying for rent is throwing away money...myth?

Post by michaeljc70 » Wed Jun 12, 2019 3:18 pm

flyphotoguy wrote:
Wed Jun 12, 2019 2:59 pm
H-Town wrote:
Wed Jun 12, 2019 2:19 pm
alfredwallace wrote:
Wed Jun 12, 2019 12:19 pm
My first post--I thought it would be about laying bare my financial soul, but I guess not. I don't think it matters if you buy or rent. They are about the same. Here is my logic. Feel free to beat it up......

Just want to add 3 things:

1) We all tend to get more house than we need. For Mr. and Mrs. Buy, it's expensive to downsize. It's even more expensive to keep that big house for 30 year mortgage. Unless they're making top 1 percent money, they'll have a hard time to save and be financial independent. For Mr. and Mrs. Rent, they can fix that mistake in the next lease.

2) In the event of a divorce, Mr. and Mrs. Buy will have an expensive fight over the house. Mr. and Mrs. Rent will have one less thing to worry about.

3) Fees and expenses matter. Real estate transaction fees and mortgage interest are material numbers. Keep those low will help you a long way in home ownership journey.
Wow! Well #2 is a big one since what's the divorce rate now? is it close to 50%. Didn't think about this but like most I agree it's a lifestyle/numbers game.

We were previously renting for $1.4K/mo at a nice apartment complex, but year by year the rent went up, and up since I live in a HCOL every complex is priced the same. So when it hit >$2K we decided to buy since that's pretty much the cost of a 2 bedroom condo here. Happy with the condo purchase and never have a problem renting and investing the rest, but life happens so choose what you find matches your lifestyle. But going back, #2 above can't be discounted since it happens often and will impact everything in your life.
Won't Mr and Mrs Rent be fighting over all that money in the S&P 500 fund they invested all those years? Why would they fight over a terrible house that has huge upkeep, is more expensive than renting, makes them less mobile, etc? :shock:

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

Post by esteen » Wed Jun 12, 2019 3:26 pm

Renting is better sometimes, buying is better sometimes, and not always for monetary reasons. For example at my current location it actually would have been cheaper to rent but we bought because we wanted more freedom in modifying the home/yard, never getting evicted, unrestricted pet ownership, etc. Because we are otherwise solid financially we felt it was worth it to "pay" for these freedoms despite it being the more expensive alternative on paper.

In the end, money is meant to help you live your current and future life. Pay for things that make you long-term happy (not brief thrills), and for us one of those things has been a primary home. The other side is true: you may consider the freedom of non-maintenance (i.e. by renting) something worth paying extra for, so even if renting comes out slightly more expensive for you on paper, it still may be your optimal choice.

I have not bought into the idea that (currently in the US) your home should be a source of your wealth. Like others on here have said, it's a life expense. From a pure money perspective, home ownership tends to far outweigh renting when the owner stays in the same place for multiple decades and pays off the house, but continues to live in it for nothing more than property taxes and maintenance costs. That doesn't happen in the US nearly as often as it used to.

-ES

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

Post by H-Town » Wed Jun 12, 2019 3:33 pm

michaeljc70 wrote:
Wed Jun 12, 2019 3:18 pm
Won't Mr and Mrs Rent be fighting over all that money in the S&P 500 fund they invested all those years? Why would they fight over a terrible house that has huge upkeep, is more expensive than renting, makes them less mobile, etc? :shock:
Things will be split in half. Mr. and Mrs. Rent each will get half of the shares in S&P 500 fund. But it's different with a house. You'll spend money on appraisal, transaction cost. You'll fight over who would keep the house and how much to pay off the ex-spouse. Sometimes you are forced to sell in a bad housing market and losing money. Many factors in play with a house that make it complicated in the event of a divorce.

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

Post by AerialWombat » Wed Jun 12, 2019 3:38 pm

protagonist wrote:
Tue Jun 11, 2019 10:32 pm
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
No, there would not have been $6 million. I would presume that $80k was the purchase price, but that she didn't pay all cash, up front for that. You're also ignoring the negative cash flow impact of annual rent increases -- aka the opportunity cost factor between having the PI portion of monthly housing costs fixed for decades, dis-allowing the delta between PI and rent to be invested.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

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

Post by StealthRabbit » Wed Jun 12, 2019 3:42 pm

H-Town wrote:
Wed Jun 12, 2019 2:19 pm
alfredwallace wrote:
Wed Jun 12, 2019 12:19 pm
My first post--I thought it would be about laying bare my financial soul, but I guess not. I don't think it matters if you buy or rent. They are about the same. Here is my logic. Feel free to beat it up.

Let's say Mr. Buy and Mr. Rent are both the same age, 26 and they both have 60K saved up. .... Combined Mr. Buy now has 4,137,456 dollars in assets compared to Mr. Rent's 3,952,651 dollars at the age of 86.

...
Just want to add 3 things:

1) We all tend to get more house than we need. For Mr. and Mrs. Buy, it's expensive to downsize. It's even more expensive to keep that big house for 30 year mortgage. Unless they're making top 1 percent money, they'll have a hard time to save and be financial independent. For Mr. and Mrs. Rent, they can fix that mistake in the next lease.

2) In the event of a divorce, Mr. and Mrs. Buy will have an expensive fight over the house. Mr. and Mrs. Rent will have one less thing to worry about.

3) Fees and expenses matter. Real estate transaction fees and mortgage interest are material numbers. Keep those low will help you a long way in home ownership journey.

Yes the fees matter! 30+ property transactions, I have only used commissioned RE agents (2) times, because buyer or seller want their hand held. A GOOD RE attorney that can actually provide you with legal advice (+/-) is about 1/10th the cost of a 6 - 7% commission
option 3...(not Rent or Buy) ... Use that RE investment on a NNN 10 - 12% cap rate investment property (+/-, but will get a different set of risks and rewards, but keeps in in the RE equity market). You positive cash flows can fund your personal rents in Tahiti, Toronto, Tokyo, or Tulsa. You get some sweet deductions / offsets to income. Play your cards, sell during retirement on payment terms, or in a low tax yr, or 1031 into a private REIT.

Many options.
None are right for all.

international001
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Re: Paying for rent is throwing away money...myth?

Post by international001 » Wed Jun 12, 2019 4:02 pm

michaeljc70 wrote:
Wed Jun 12, 2019 10:03 am
international001 wrote:
Wed Jun 12, 2019 9:54 am
JoMoney wrote:
Wed Jun 12, 2019 8:16 am
international001 wrote:
Wed Jun 12, 2019 6:32 am
I see lots of people talking about the personal lifestyle and market driven forces

But nobody is considering one of the great advantages of buying. It's very easy to obtain a mortgage. With some additional risk, makes your returns so much better
It's not just "Some risk" making it "so much better", leverage works both ways up and down. However you want to measure a unit of risk, your return is reduced by the amount of interest payment making the risk adjusted return worse.
You also trade the advantage of the "imputed rent" on your equity in your home, which is essentially unlimited (which allows for other income to be saved/invested, or other investments to not be cased out), instead you might get a limited mortgage interest deduction (not owing taxes on the money you give a bank).

Anyways, I did bring up the "advantage" that is government subsidized home loans in the U.S. several pages back. You won't find 30 year fixed rates or rates as low as they are in the U.S. elsewhere.
Sure, leverage works both ways. But in normal situations it works on favor of the owner. Mortgage rates are usually lower than the rental income return

Do you know that in Europe you can get today a 30 year for 2.20%?
I never understood why, but people often get houses that are much more expensive compared to their income (relative to US standards)
Is that a 2.2% fixed for 30 years?
yes.. it can increase 0.5% once you wrap up some other expenses. And banks usually force you to get your paycheck there and contract other services. But still, really low.

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

Post by FIREchief » Wed Jun 12, 2019 4:18 pm

quantAndHold wrote:
Wed Jun 12, 2019 2:24 pm
Pretty much everyone I know who has been a long term renter has been booted out at some point, sometimes from multiple places in a short period of time.
Maybe you need to hang out with a different crowd! :P
Usually because the building has been sold and the new owner either wants to convert to condos, or renovate so that they can double the rent.
You're describing a different type of area than the one I live in. I am fortunate to have access to several really nice "luxury" apartment complexes that were all built within the last five years. Much more up to date than the house I just sold (after over two decades). 9' ceilings. 36" doorways throughout. Sprinklers and fire dampers. Dual pane tinted class windows. Getting "booted" so that the landlord can renovate or convert to condos likely isn't on the radar. Even if it were, moving from here to a better place would be a whole lot easier than getting out of that 5 bdrm house. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by THY4373 » Thu Jun 13, 2019 8:51 am

H-Town wrote:
Wed Jun 12, 2019 2:19 pm

2) In the event of a divorce, Mr. and Mrs. Buy will have an expensive fight over the house. Mr. and Mrs. Rent will have one less thing to worry about.

May have not will have. This is totally YMMV. When my ex and I divorced my ex wanted the house and I did not so no expensive fight. In fact the several other divorces I am aware of this was also the case. One spouse wanted the place and the other either did not or could not afford it on their own. All anecdotes of course but this is certainly YMMV (like pretty much everything else in this thread).
Last edited by THY4373 on Thu Jun 13, 2019 1:31 pm, edited 2 times in total.

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

Post by protagonist » Thu Jun 13, 2019 8:51 am

quantAndHold wrote:
Tue Jun 11, 2019 11:17 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
quantAndHold wrote:
Tue Jun 11, 2019 5:26 pm
protagonist wrote:
Tue Jun 11, 2019 12:27 pm
I inherited a home from my mom in FL in 2005, at which time it was appraised at $260,000. That is, in 2005 dollars.
By 2010 I would have been lucky to sell it for $80K.
I finally sold it in 2018 for $168,000 before paying realtor fees. That was pretty much market value.
I did have positive cash flow in the interim but lots of headaches being a landlord.

Any more questions?
How much did your mom pay for it?
She bought it in 1980....paid about what it was worth in 2010, but in 1980 dollars. I forget exactly, but it was around $80K.
"$80,000 in 1980 is equivalent in purchasing power to about $243,793.04 in 2018".
So if she sold the property instead of me last year, she would have effectively lost about $75K in 2018 dollars (real terms) when she sold it, while paying to maintain the property for 38 years. Fortunately I didn't buy it, and the cost basis corrected to $260K when I inherited it.
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
Did she actually pay $80,000 cash for the place in 1980, or did she finance? If she put 10 or 20% down and financed the rest, then the alternative investment is $8-16k, not $80k. She also had a place to live for 25 years.

If it was such a bad deal, why didn’t you sell it in 2005? Oh, wait. Positive cash flow.

She paid cash.
It wasn't a bad deal for me....it was a free house. Still I would have preferred the $6 million. *smile*

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

Post by protagonist » Thu Jun 13, 2019 9:04 am

AerialWombat wrote:
Wed Jun 12, 2019 3:38 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
No, there would not have been $6 million. I would presume that $80k was the purchase price, but that she didn't pay all cash, up front for that. You're also ignoring the negative cash flow impact of annual rent increases -- aka the opportunity cost factor between having the PI portion of monthly housing costs fixed for decades, dis-allowing the delta between PI and rent to be invested.
She paid for the house all cash, no mortgage in 1980.
The point of the post was to convey an idea, not to accurately tease out how much would have been gained or lost . And also to make people think "whoa" and laugh at my relative misfortune, because I thought that would be fun for them.
The idea is that buying a home is not inherently financially a better decision than renting.

wm631
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Re: Paying for rent is throwing away money...myth?

Post by wm631 » Thu Jun 13, 2019 12:50 pm

protagonist wrote:
Thu Jun 13, 2019 9:04 am
AerialWombat wrote:
Wed Jun 12, 2019 3:38 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
No, there would not have been $6 million. I would presume that $80k was the purchase price, but that she didn't pay all cash, up front for that. You're also ignoring the negative cash flow impact of annual rent increases -- aka the opportunity cost factor between having the PI portion of monthly housing costs fixed for decades, dis-allowing the delta between PI and rent to be invested.
She paid for the house all cash, no mortgage in 1980.
The point of the post was to convey an idea, not to accurately tease out how much would have been gained or lost . And also to make people think "whoa" and laugh at my relative misfortune, because I thought that would be fun for them.
The idea is that buying a home is not inherently financially a better decision than renting.
Certainly no laughter here - I was roughly in the same situation. Except - grace of God, luck, serendipity; whatever - I came out on top dollar. The Fla. market started collapsing approx. six months later. (see: my previous posts on this thread).

What few in the last several pages of this thread don't seem to want to address is the sheer extra cost in personal time expended, money spent in keeping a home residence going through the years and disposing at the end. I've said my piece. You also seem to know, first hand. Hopefully, the OP - remember him? - will keep it all in mind as he/she makes a pretty permanent decision.

buhlaxtus
Posts: 76
Joined: Wed Apr 20, 2016 1:55 am

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

Post by buhlaxtus » Thu Jun 13, 2019 12:57 pm

THY4373 wrote:
Thu Jun 13, 2019 8:51 am
totally YMMV
Perfect summary for this topic :)

protagonist
Posts: 5773
Joined: Sun Dec 26, 2010 12:47 pm

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

Post by protagonist » Thu Jun 13, 2019 1:27 pm

wm631 wrote:
Thu Jun 13, 2019 12:50 pm
protagonist wrote:
Thu Jun 13, 2019 9:04 am
AerialWombat wrote:
Wed Jun 12, 2019 3:38 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
No, there would not have been $6 million. I would presume that $80k was the purchase price, but that she didn't pay all cash, up front for that. You're also ignoring the negative cash flow impact of annual rent increases -- aka the opportunity cost factor between having the PI portion of monthly housing costs fixed for decades, dis-allowing the delta between PI and rent to be invested.
She paid for the house all cash, no mortgage in 1980.
The point of the post was to convey an idea, not to accurately tease out how much would have been gained or lost . And also to make people think "whoa" and laugh at my relative misfortune, because I thought that would be fun for them.
The idea is that buying a home is not inherently financially a better decision than renting.
Certainly no laughter here - I was roughly in the same situation. Except - grace of God, luck, serendipity; whatever - I came out on top dollar. The Fla. market started collapsing approx. six months later. (see: my previous posts on this thread).

What few in the last several pages of this thread don't seem to want to address is the sheer extra cost in personal time expended, money spent in keeping a home residence going through the years and disposing at the end. I've said my piece. You also seem to know, first hand. Hopefully, the OP - remember him? - will keep it all in mind as he/she makes a pretty permanent decision.
I agree. It is difficult to monetize time, effort and anxiety, which is so often an overlooked factor in this forum.

michaeljc70
Posts: 5114
Joined: Thu Oct 15, 2015 3:53 pm

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

Post by michaeljc70 » Thu Jun 13, 2019 1:48 pm

protagonist wrote:
Thu Jun 13, 2019 1:27 pm
wm631 wrote:
Thu Jun 13, 2019 12:50 pm
protagonist wrote:
Thu Jun 13, 2019 9:04 am
AerialWombat wrote:
Wed Jun 12, 2019 3:38 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
No, there would not have been $6 million. I would presume that $80k was the purchase price, but that she didn't pay all cash, up front for that. You're also ignoring the negative cash flow impact of annual rent increases -- aka the opportunity cost factor between having the PI portion of monthly housing costs fixed for decades, dis-allowing the delta between PI and rent to be invested.
She paid for the house all cash, no mortgage in 1980.
The point of the post was to convey an idea, not to accurately tease out how much would have been gained or lost . And also to make people think "whoa" and laugh at my relative misfortune, because I thought that would be fun for them.
The idea is that buying a home is not inherently financially a better decision than renting.
Certainly no laughter here - I was roughly in the same situation. Except - grace of God, luck, serendipity; whatever - I came out on top dollar. The Fla. market started collapsing approx. six months later. (see: my previous posts on this thread).

What few in the last several pages of this thread don't seem to want to address is the sheer extra cost in personal time expended, money spent in keeping a home residence going through the years and disposing at the end. I've said my piece. You also seem to know, first hand. Hopefully, the OP - remember him? - will keep it all in mind as he/she makes a pretty permanent decision.
I agree. It is difficult to monetize time, effort and anxiety, which is so often an overlooked factor in this forum.
I think being in a rental would give me anxiety. I had my last house built and picked everything and in my current place pretty much everything was renovated to the way I wanted it. But a lot of people don't care about that kind of thing. I do plan on moving to a rental when I am probably in my 70s for convenience and hopefully that stuff won't bother me at that point.

Bones72
Posts: 10
Joined: Sun May 12, 2019 11:13 am

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

Post by Bones72 » Thu Jun 13, 2019 1:58 pm

Own our home with no lien. We are able to save the difference, however our 2600 square foot monster is in a small, slowly dying town in the middle of nowhere. We'll never recoup our investment, but it's an awfully nice place to live.

lxr184
Posts: 14
Joined: Fri Nov 02, 2018 12:18 pm

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

Post by lxr184 » Thu Jun 13, 2019 2:01 pm

Paying thousands in real estate taxes and tens of thousands in mortgage interest can be considered throwing money away. So is the association fee, home owner's insurance, replacing appliances, heaters, roof, windows, etc.

quantAndHold
Posts: 3268
Joined: Thu Sep 17, 2015 10:39 pm

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

Post by quantAndHold » Thu Jun 13, 2019 5:14 pm

protagonist wrote:
Thu Jun 13, 2019 8:51 am
quantAndHold wrote:
Tue Jun 11, 2019 11:17 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
quantAndHold wrote:
Tue Jun 11, 2019 5:26 pm
protagonist wrote:
Tue Jun 11, 2019 12:27 pm
I inherited a home from my mom in FL in 2005, at which time it was appraised at $260,000. That is, in 2005 dollars.
By 2010 I would have been lucky to sell it for $80K.
I finally sold it in 2018 for $168,000 before paying realtor fees. That was pretty much market value.
I did have positive cash flow in the interim but lots of headaches being a landlord.

Any more questions?
How much did your mom pay for it?
She bought it in 1980....paid about what it was worth in 2010, but in 1980 dollars. I forget exactly, but it was around $80K.
"$80,000 in 1980 is equivalent in purchasing power to about $243,793.04 in 2018".
So if she sold the property instead of me last year, she would have effectively lost about $75K in 2018 dollars (real terms) when she sold it, while paying to maintain the property for 38 years. Fortunately I didn't buy it, and the cost basis corrected to $260K when I inherited it.
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
Did she actually pay $80,000 cash for the place in 1980, or did she finance? If she put 10 or 20% down and financed the rest, then the alternative investment is $8-16k, not $80k. She also had a place to live for 25 years.

If it was such a bad deal, why didn’t you sell it in 2005? Oh, wait. Positive cash flow.

She paid cash.
It wasn't a bad deal for me....it was a free house. Still I would have preferred the $6 million. *smile*
You still wouldn’t have had anywhere close to $6m, because she would have needed to liberate a fair chunk of it to pay 25 years of rent.

protagonist
Posts: 5773
Joined: Sun Dec 26, 2010 12:47 pm

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

Post by protagonist » Thu Jun 13, 2019 5:20 pm

quantAndHold wrote:
Thu Jun 13, 2019 5:14 pm
protagonist wrote:
Thu Jun 13, 2019 8:51 am
quantAndHold wrote:
Tue Jun 11, 2019 11:17 pm
protagonist wrote:
Tue Jun 11, 2019 10:32 pm
quantAndHold wrote:
Tue Jun 11, 2019 5:26 pm


How much did your mom pay for it?
She bought it in 1980....paid about what it was worth in 2010, but in 1980 dollars. I forget exactly, but it was around $80K.
"$80,000 in 1980 is equivalent in purchasing power to about $243,793.04 in 2018".
So if she sold the property instead of me last year, she would have effectively lost about $75K in 2018 dollars (real terms) when she sold it, while paying to maintain the property for 38 years. Fortunately I didn't buy it, and the cost basis corrected to $260K when I inherited it.
If instead, she invested $80K in the S+P 500 in 1980 and reinvested dividends it would have been worth over $6,000,000 in 2018. I sure wish she rented. *laughing*
Did she actually pay $80,000 cash for the place in 1980, or did she finance? If she put 10 or 20% down and financed the rest, then the alternative investment is $8-16k, not $80k. She also had a place to live for 25 years.

If it was such a bad deal, why didn’t you sell it in 2005? Oh, wait. Positive cash flow.

She paid cash.
It wasn't a bad deal for me....it was a free house. Still I would have preferred the $6 million. *smile*
You still wouldn’t have had anywhere close to $6m, because she would have needed to liberate a fair chunk of it to pay 25 years of rent.
That is assuming that my mom had no income or other savings besides what she sunk into home equity. She lived off social security and relatively meager investments. She never tapped into home equity to pay her housing or other expenses. Whether she would have had to sell stock to pay rent is a moot point. As for the hassles and joys of home ownership vs renting, that is a very individual decision and we all know the pluses and minuses.

I am not arguing that renting is better than home ownership. I am arguing that it is a crap shoot. In my mom's (and later my) case, we lost the gamble, probably by a huge margin. Things could conceivably go the other way as well.

DaftInvestor
Posts: 4486
Joined: Wed Feb 19, 2014 10:11 am

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

Post by DaftInvestor » Fri Jun 14, 2019 10:21 am

OP (Ducksinarow): I didn't read all six pages but wanted to give you my perspective.
For the most part this is NOT a myth. When you pay rent you are helping your landlord/owner build his equity/investment and/or are contributing to his income. This is true in MOST cases (everyone always likes to come up with the rare corner cases whereby this isn't true).
If you own you are contributing to your own equity and allowing yourself to eventually save more.
You should rent if you are relatively sure you will be moving soon due to transaction costs.
If you take me as a use case - I owned a home with a 15 year mortgage - the price of mortgage/interest/etc. was only slightly more than I would have been paying for rent. Once the mortgage was paid off I am only paying insurance/taxes/maintenance which is FAR below what I would be paying for rent. The rest of the savings goes into investments and lifestyle upgrades. Meanwhile my friends who never bought complain about even increasing rent pricing (the price of your fixed mortgage - NEVER increases. Taxes do but they are smaller than rent).
The other counter-argument folks like to bring up is "people, on average, move every 5-7 years" - this was true 25 years ago - but is no longer true today - folks are staying in place, on average, far longer. If you won't be changing locations - you are typically throwing away money by renting versus owning (now I'm sure someone will respond to my post with one of the rare corner cases focusing on real-estate timing, apples/oranges comparisons in terms of square-footage, etc. :) ). The reason some folks like to argue so vehemently against owning is simply that they like to justify their own decisions (which in some cases may have been the correct ones - one of the rare corner-cases).
Last edited by DaftInvestor on Fri Jun 14, 2019 12:01 pm, edited 1 time in total.

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