Renting for life - a bad idea?

[Swmi8675309]

My parents lived in the same house for 36 years before retiring to a warmer climate. My in-laws have been in their house for 42 years and still going strong there.

My in-laws have been in their home over 50 years but that remains the exception.

The average time to stay in one home is only around 8 years here in the USA:

https://www.thezebra.com/resources/home ... ownership/

In that time there's little principal repayment on a standard 30-year mortgage so most homeowners are just renting from the bank.

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

According to an article listed above, median time in a house is 13.2 years and average time is 8 years, so what is the point of talking about 20 years for the typical person?

As for the cost of moving: the average cost is listed as $4000.

https://www.bobvila.com/articles/how-mu ... t-to-move/

That is about $300 per year for some that is in a house for the median time frame and $500/year for the average time frame of 8 years.

Compare that to typical home maintenance costs.

As I said previously, this is a very complex issue with possibly no easy answers.

[petulant]

My parents lived in the same house for 36 years before retiring to a warmer climate. My in-laws have been in their house for 42 years and still going strong there.

My in-laws have been in their home over 50 years but that remains the exception.

The average time to stay in one home is only around 8 years here in the USA:

https://www.thezebra.com/resources/home ... ownership/

In that time there's little principal repayment on a standard 30-year mortgage so most homeowners are just renting from the bank.

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

[rockstar]

My in-laws have been in their home over 50 years but that remains the exception.

The average time to stay in one home is only around 8 years here in the USA:

https://www.thezebra.com/resources/home ... ownership/

In that time there's little principal repayment on a standard 30-year mortgage so most homeowners are just renting from the bank.

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

According to an article listed above, median time in a house is 13.2 years and average time is 8 years, so what is the point of talking about 20 years for the typical person?

As for the cost of moving: the average cost is listed as $4000.

https://www.bobvila.com/articles/how-mu ... t-to-move/

That is about $300 per year for some that is in a house for the median time frame and $500/year for the average time frame of 8 years.

Compare that to typical home maintenance costs.

As I said previously, this is a very complex issue with possibly no easy answers.

So where are you living?

The reality is that you have to live somewhere and either pay rent or a mortgage.

How frequently is a renter moving versus a home owner?

[rockstar]

My in-laws have been in their home over 50 years but that remains the exception.

The average time to stay in one home is only around 8 years here in the USA:

https://www.thezebra.com/resources/home ... ownership/

In that time there's little principal repayment on a standard 30-year mortgage so most homeowners are just renting from the bank.

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

A home owner paying $650 mortgage payments over twenty years versus a renter starting at $650 and going to $1800 over the same period. Sure, you can throw in some insurance and property tax increases, but they don’t completely offset the rent increase. The difference becomes money to invest, pay down faster, or spend. How is the home owner not in a better position than the renter?

[petulant]

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

A home owner paying $650 mortgage payments over twenty years versus a renter starting at $650 and going to $1800 over the same period. Sure, you can throw in some insurance and property tax increases, but they don’t completely offset the rent increase. The difference becomes money to invest, pay down faster, or spend. How is the home owner not in a better position than the renter?

It's a big assumption that a homeowner starts paying $650 and a renter starts paying $650 for equivalent place. In my market somebody with a $1200 rent cost for a SFH would be paying $1600-1700 in mortgage, tax, and insurance costs for the same place if 100% financed. It would take several years or a very large rent hike before the renter is paying the same cash as the homeowner.

[secondopinion]

I think the bottom line is as a renter one must be take advantage of the flexibility and opportunities. As a home owner, one must take advantage of the permanence. If one cannot do that, then they are doing the wrong thing.

[rockstar]

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

A home owner paying $650 mortgage payments over twenty years versus a renter starting at $650 and going to $1800 over the same period. Sure, you can throw in some insurance and property tax increases, but they don’t completely offset the rent increase. The difference becomes money to invest, pay down faster, or spend. How is the home owner not in a better position than the renter?

It's a big assumption that a homeowner starts paying $650 and a renter starts paying $650 for equivalent place. In my market somebody with a $1200 rent cost for a SFH would be paying $1600-1700 in mortgage, tax, and insurance costs for the same place if 100% financed. It would take several years or a very large rent hike before the renter is paying the same cash as the homeowner.

The differences shrink really fast. If I wanted to rent my home today, it would cost twice what my monthly mortgage payment is including insurance and property taxes. You can’t look at these decisions based on a single point in time.

[petulant]

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

A home owner paying $650 mortgage payments over twenty years versus a renter starting at $650 and going to $1800 over the same period. Sure, you can throw in some insurance and property tax increases, but they don’t completely offset the rent increase. The difference becomes money to invest, pay down faster, or spend. How is the home owner not in a better position than the renter?

It's a big assumption that a homeowner starts paying $650 and a renter starts paying $650 for equivalent place. In my market somebody with a $1200 rent cost for a SFH would be paying $1600-1700 in mortgage, tax, and insurance costs for the same place if 100% financed. It would take several years or a very large rent hike before the renter is paying the same cash as the homeowner.

The differences shrink really fast. If I wanted to rent my home today, it would cost twice what my monthly mortgage payment is including insurance and property taxes. You can’t look at these decisions based on a single point in time.

Sure, a real analysis would look at multiple years. But hopefully you have a sense for how fantastical it would be for somebody deciding whether to buy a house *right now* would pay the same out of pocket for a rental or the home.

[rockstar]

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

A home owner paying $650 mortgage payments over twenty years versus a renter starting at $650 and going to $1800 over the same period. Sure, you can throw in some insurance and property tax increases, but they don’t completely offset the rent increase. The difference becomes money to invest, pay down faster, or spend. How is the home owner not in a better position than the renter?

It's a big assumption that a homeowner starts paying $650 and a renter starts paying $650 for equivalent place. In my market somebody with a $1200 rent cost for a SFH would be paying $1600-1700 in mortgage, tax, and insurance costs for the same place if 100% financed. It would take several years or a very large rent hike before the renter is paying the same cash as the homeowner.

The differences shrink really fast. If I wanted to rent my home today, it would cost twice what my monthly mortgage payment is including insurance and property taxes. You can’t look at these decisions based on a single point in time.

Sure, a real analysis would look at multiple years. But hopefully you have a sense for how fantastical it would be for somebody deciding whether to buy a house *right now* would pay the same out of pocket for a rental or the home.

That’s the problem. It’s not a right now decision. It’s what does my situation look 10 or 20 years from now if I rent versus buy.

[SmileyFace]

I noticed none of the folks that chat on the landlording threads are jumping in - they are sitting back watching and hoping the life-long renters continue to convince themselves they are making the better financial decision

[rockstar]

I noticed none of the folks that chat on the landlording threads are jumping in - they are sitting back watching and hoping the life-long renters continue to convince themselves they are making the better financial decision

We’re gradually transitioning to feudalism.

[EnjoyIt]

People who bought homes in California have done very well on appreciation and believe buying is the correct move. People who bought in parts of Arizona or Florida have not had the same appreciation. Some homes only recently recovered from the peeks of 2009. For them renting and investing the down payment was the right move for them.

All else being equal the real decision is:
Does the downpayment appreciate more invested in the house or invested in the market? We can't predict the future.
Does one take advantage of the flexibility of renting vs the permanence of owning?
Does one spend significantly on personal home upgrades that you only get a fraction of it back in home appreciation?
Does one rent their ideal place or do they settle and therefor rent smaller than they would buy?

All those above sway the decision one way or the other. There is no one right answer for everyone.

[Visual Artist]

As a life long renter up to now - 62 - I’m reading the posts with some interest. To me renting vs buying is more of a lifestyle choice than an investment decision. In my particular case, living in HCOL areas and looking for an urban lifestyle I could never afford buying in an area that was desirable to me; I didn’t want to live in a neighborhood where I was afraid to walk around or spend hours driving to and from work living in some cultural wasteland. By renting I could afford to live in an area I was happy with. We’ve now lived in the same rentcontrolled townhouse apartment for 12 years and each year it gets “cheaper” compared to surrounding rentals due to rent control, so we’re sort of stuck here unless we decide to relocate to a LCOL area.

[petulant]

People who bought homes in California have done very well on appreciation and believe buying is the correct move. People who bought in parts of Arizona or Florida have not had the same appreciation. Some homes only recently recovered from the peeks of 2009. For them renting and investing the down payment was the right move for them.

All else being equal the real decision is:
Does the downpayment appreciate more invested in the house or invested in the market? We can't predict the future.
Does one take advantage of the flexibility of renting vs the permanence of owning?
Does one spend significantly on personal home upgrades that you only get a fraction of it back in home appreciation?
Does one rent their ideal place or do they settle and therefor rent smaller than they would buy?

All those above sway the decision one way or the other. There is no one right answer for everyone.

Here's a guide:

If you live in a market where houses are going to appreciate a lot, then buy a house.

If you live in a market where houses aren't going to appreciate a lot, then don't buy a house.

[EnjoyIt]

People who bought homes in California have done very well on appreciation and believe buying is the correct move. People who bought in parts of Arizona or Florida have not had the same appreciation. Some homes only recently recovered from the peeks of 2009. For them renting and investing the down payment was the right move for them.

All else being equal the real decision is:
Does the downpayment appreciate more invested in the house or invested in the market? We can't predict the future.
Does one take advantage of the flexibility of renting vs the permanence of owning?
Does one spend significantly on personal home upgrades that you only get a fraction of it back in home appreciation?
Does one rent their ideal place or do they settle and therefor rent smaller than they would buy?

All those above sway the decision one way or the other. There is no one right answer for everyone.

Here's a guide:

If you live in a market where houses are going to appreciate a lot, then buy a house.

If you live in a market where houses aren't going to appreciate a lot, then don't buy a house.

Hey, if you can predict housing prices in the future, I'm all ears.

I guess a decent bet (and it is a bet) would be to buy in an area that is very desirable with difficulty creating new builds.

[livingalmostlarge]

As a life long renter up to now - 62 - I’m reading the posts with some interest. To me renting vs buying is more of a lifestyle choice than an investment decision. In my particular case, living in HCOL areas and looking for an urban lifestyle I could never afford buying in an area that was desirable to me; I didn’t want to live in a neighborhood where I was afraid to walk around or spend hours driving to and from work living in some cultural wasteland. By renting I could afford to live in an area I was happy with. We’ve now lived in the same rentcontrolled townhouse apartment for 12 years and each year it gets “cheaper” compared to surrounding rentals due to rent control, so we’re sort of stuck here unless we decide to relocate to a LCOL area.

So did you save the difference between rent and buying? What do you pay to rent? What is the going rent now? What was it to buy 12 years ago the price of the townhouse?

I think it would be avery interested perspective since you are a life long renter with the knowledge of rent from 12 years ago and the current rent in surrounding areas. You can also tell us probably what it would have cost to buy 12 years ago and what it would cost now.

And I find it interesting that no long term landlords with multiple units has not weighed in on why renting for life is bad when they are making their livelyhood off the rents of people. And their life long renters what happens after 20 years?

I find only a couple of people say they actually save the difference between rent and owning. And a lot of people talk about maintenance costs. But maintenance costs I've found have not been the equivalent on paying rent. And I have never seen rent not go up. Even in California there is no rent control in many areas as it's been defined. California rent control is 5% + CPI or 10%. Whichever is lower.

I am sure many landlords who suddenly had huge property taxes or water or any sort of repair or bill expense would raise the rent the maximum they can.

[livingalmostlarge]

And like the renters who "invest" the difference between rent and mortgage, there are homeowners who buy the exact same size of home they rent. They don't rent smaller because they don't buy bigger (us for example to counteract the one renter who said they have tracked their investing for 20 years). Well I'm living in a house the same size as my rental house before and I rented a house because I wanted a house to raise kids in with a garage. And my rental house 8 years after living there the rent has close to doubled in that time. We rented for $2400 (2015), the last rental ad was $4000 this summer and i am sure it's rented (2023), it wasn't listed or sold and the guy who bought it in 2015 bought as an investment for $445k it's on redfin as the sale date and price.

So I am going to guess with the down payment and fixed rate mortgage and now increasing rent, it'd suck to have rented all these years and now be paying $4000/month instead of $2400. And then to keep renting. FWIW the current estimate on the price of the home $1.088. I know they can sell for $1m, that's what the homes in the area have sold for. Like the sam cul-de-sac.

So in 8 yeaers it goes up to $5500. That's a lot more than having bought in 2015 with 20% Down and 4% mortgage rate $1681. Then property taxes ( $4800 year) + insurance $1200 (year) = $2181 my guess is for the payment in 2015. A little below rent, but now with the $10k property taxes = $500 extra the landlord now is paying $2700 versus $4000 in rent and paying down principal and less interest.

So i don't think the renter is coming out ahead but the $90k invested in 2015 in SP Index with dividend reinvestment = $217k or 142%. But the person is paying more rent since 2015. How much does that cut into not counting appreciation on the rental?

[Caduceus]

It depends on the specifics of the house in question. One way of simplifying the question is to think about how much you'd be earning as a landlord. If you were on the other side of the transaction - the investor/landlord - how much would you be able to make, after all costs/taxes have been paid off, were you to rent the place out?

Housing markets are so specific and so local that buying in one place could be a very good idea when it isn't in another location.

But homeowners, in my experience, usually over-state their housing returns as an "investment." I have friends who boast about how much their house has appreciated. I don't bother pointing out that they are miscalculating the return on investment because they didn't include the up-front significant renovation cost - as well as all the other frictional costs of transaction - in the original purchase price of the house when they did a simple calculation of how much the house has appreciated by.

The main redeeming feature of housing, for me, is leverage. If you only put down 20% and home prices appreciate, you'd make quite a bit. That works especially well if you're a landlord, and less well if you're just living in an owner-occupied property and consuming the entirety of the imputed rents. People lose their minds when it comes to houses. You don't hear anyone saying - "my expensive Tesla is a better investment than the cheaper Toyota". Both are cars and both get you where you need to go, but one's more expensive. It's an obvious expense. Same with homes. Everyone needs a certain standard of housing, but anything beyond that is mostly consumption. If owner-occupied properties were really such great investments, then you could just buy the largest mansion you could afford and treat it like an "investment" and hope it appreciates.

Renting for life is fine as long as you're saving any difference and living within your means. All those surveys about homeowners building more wealth have got it a bit ass-backward. Poor people can't afford to buy their homes whereas middle-class folks can; so it's not that homeownership builds wealth but owning a home reflects your wealth-building potential. It's rarer to have people who can afford to buy a home but do not, and in those scenarios, it's not clear who comes out ahead.

[rockstar]

It depends on the specifics of the house in question. One way of simplifying the question is to think about how much you'd be earning as a landlord. If you were on the other side of the transaction - the investor/landlord - how much would you be able to make, after all costs/taxes have been paid off, were you to rent the place out?

Housing markets are so specific and so local that buying in one place could be a very good idea when it isn't in another location.

But homeowners, in my experience, usually over-state their housing returns as an "investment." I have friends who boast about how much their house has appreciated. I don't bother pointing out that they are miscalculating the return on investment because they didn't include the up-front significant renovation cost - as well as all the other frictional costs of transaction - in the original purchase price of the house when they did a simple calculation of how much the house has appreciated by.

The main redeeming feature of housing, for me, is leverage. If you only put down 20% and home prices appreciate, you'd make quite a bit. That works especially well if you're a landlord, and less well if you're just living in an owner-occupied property and consuming the entirety of the imputed rents. People lose their minds when it comes to houses. You don't hear anyone saying - "my expensive Tesla is a better investment than the cheaper Toyota". Both are cars and both get you where you need to go, but one's more expensive. It's an obvious expense. Same with homes. Everyone needs a certain standard of housing, but anything beyond that is mostly consumption. If owner-occupied properties were really such great investments, then you could just buy the largest mansion you could afford and treat it like an "investment" and hope it appreciates.

Renting for life is fine as long as you're saving any difference and living within your means. All those surveys about homeowners building more wealth have got it a bit ass-backward. Poor people can't afford to buy their homes whereas middle-class folks can; so it's not that homeownership builds wealth but owning a home reflects your wealth-building potential. It's rarer to have people who can afford to buy a home but do not, and in those scenarios, it's not clear who comes out ahead.

Given median 401k balances, I’d argue that home equity is the majorities’s wealth. This obviously changes as you go up the income ladder.

I’d say in addition to leverage a home gives you rent control. This, I think, is more important when on a fixed income in retirement than in the accumulation years. You have more flexibility in the accumulation years.

But to really see the benefit of one versus the other, you should look at 20-30 year periods of time. A home is like equities in that you realize the value the longer you stay put. Otherwise, you give up the benefits in selling costs and moving costs. Makes more sense to me now in my 40s why Buffett stayed put than in my 20s.

[Swmi8675309]

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

According to an article listed above, median time in a house is 13.2 years and average time is 8 years, so what is the point of talking about 20 years for the typical person?

As for the cost of moving: the average cost is listed as $4000.

https://www.bobvila.com/articles/how-mu ... t-to-move/

That is about $300 per year for some that is in a house for the median time frame and $500/year for the average time frame of 8 years.

Compare that to typical home maintenance costs.

As I said previously, this is a very complex issue with possibly no easy answers.

So where are you living?

The reality is that you have to live somewhere and either pay rent or a mortgage.

How frequently is a renter moving versus a home owner?

I own.

As for how frequently renters versus home owners move, renters do seem to move more frequently.

https://www.windermere.com/blog/moving- ... rs-in-2021

As I said, I don’t feel there is a simple answer.

I will say this though: if you are a first time homebuyer it much more difficult to buy than in the past.

I have an old coworker that I see at the farmer’s market. We talk about how in the early 1990’s all of us in our department, even the single people bought houses. Now he still works in the same department as a supervisor and he knows what people start at. They start about twice the wage he started at in 1995.

The Zillow estimate for the house I bought in 1992 is just shy of 4X of what I paid for it. So twice the salary, four times the cost, plus how aggressive buyers can be in this market to get a house, that is a pretty painful situation for new buyers.

So the sacrifices you have to make to become a homeowner are much more than they were in the past. Given how much effort a down payment is renting and investing certainly has its strengths.

[rockstar]

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

According to an article listed above, median time in a house is 13.2 years and average time is 8 years, so what is the point of talking about 20 years for the typical person?

As for the cost of moving: the average cost is listed as $4000.

https://www.bobvila.com/articles/how-mu ... t-to-move/

That is about $300 per year for some that is in a house for the median time frame and $500/year for the average time frame of 8 years.

Compare that to typical home maintenance costs.

As I said previously, this is a very complex issue with possibly no easy answers.

So where are you living?

The reality is that you have to live somewhere and either pay rent or a mortgage.

How frequently is a renter moving versus a home owner?

I own.

As for how frequently renters versus home owners move, renters do seem to move more frequently.

https://www.windermere.com/blog/moving- ... rs-in-2021

As I said, I don’t feel there is a simple answer.

I will say this though: if you are a first time homebuyer it much more difficult to buy than in the past.

I have an old coworker that I see at the farmer’s market. We talk about how in the early 1990’s all of us in our department, even the single people bought houses. Now he still works in the same department as a supervisor and he knows what people start at. They start about twice the wage he started at in 1995.

The Zillow estimate for the house I bought in 1992 is just shy of 4X of what I paid for it. So twice the salary, four times the cost, plus how aggressive buyers can be in this market to get a house, that is a pretty painful situation for new buyers.

So the sacrifices you have to make to become a homeowner are much more than they were in the past. Given how much effort a down payment is renting and investing certainly has its strengths.

The problem now is finding affordable housing. If people can’t afford to live, then you won’t have many new people to hire. This is a problem that don’t be solved any time soon. Maybe when the Boomers start dying off we’ll get more housing. But builders really need to build.

Around me I see more rental properties going up than homes. But they’re tiny.

The other bit is that homes are piggy banks for a lot of people. They wouldn’t save otherwise.

On the topic of rent control, I found this study. I haven’t done a deep dive yet. But it’s eye opening.

https://economics.mit.edu/sites/default ... 202014.pdf

Rent control is ideal for a lifetime renter than doesn’t own. Unrestricted price increases will eventually catch up to their fixed income.

[harrychan]

A topic that hits home, literally.

My parents is an example of renters for life. They had a handful of opportunities to buy a home back in Asia in their home or in their adopted country but opted not to. One of the primary reason was because their rent was very low ($300USD) even today. They live in a small SFH in their adopted country that is also in Asia. Their landlord was kind and never raised rent for 45 years. I wish I could say they are well off but they never saved much money either. Now they are no longer working, their business folded and I am on the hook paying their rent until they pass. We recently got notice that the heirs want their property back. Now with no asset and income, it would be impossible to find anything for them to rent. Market rent for something equivalent goes for about $1500USD. Something I cannot afford so my dad simply refuses to move until evicted. He's in his 80's so he really doesn't want to have to pack up 45 years of belongings and move. But if we get an eviction notice, it'll be down to cash for keys and I will have to buy something for him in the $100-150k range which would be an older apartment. It will be very difficult to find one without stairs as my parents can't walk much.

OTOH, I bought something knowing what my parents are going through. I don't want to be in their situation where I am old and unable to afford market rent. I think my parents situation would have worked out if they invested and have cash but still need to rely heavily on family and friends. That's not something I want to have to do. I may still need to rely on others but at least I know I will have a paid for home. I live in a market where there will be ample work and social services nearby.

[petulant]

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

According to an article listed above, median time in a house is 13.2 years and average time is 8 years, so what is the point of talking about 20 years for the typical person?

As for the cost of moving: the average cost is listed as $4000.

https://www.bobvila.com/articles/how-mu ... t-to-move/

That is about $300 per year for some that is in a house for the median time frame and $500/year for the average time frame of 8 years.

Compare that to typical home maintenance costs.

As I said previously, this is a very complex issue with possibly no easy answers.

So where are you living?

The reality is that you have to live somewhere and either pay rent or a mortgage.

How frequently is a renter moving versus a home owner?

I own.

As for how frequently renters versus home owners move, renters do seem to move more frequently.

https://www.windermere.com/blog/moving- ... rs-in-2021

As I said, I don’t feel there is a simple answer.

I will say this though: if you are a first time homebuyer it much more difficult to buy than in the past.

I have an old coworker that I see at the farmer’s market. We talk about how in the early 1990’s all of us in our department, even the single people bought houses. Now he still works in the same department as a supervisor and he knows what people start at. They start about twice the wage he started at in 1995.

The Zillow estimate for the house I bought in 1992 is just shy of 4X of what I paid for it. So twice the salary, four times the cost, plus how aggressive buyers can be in this market to get a house, that is a pretty painful situation for new buyers.

So the sacrifices you have to make to become a homeowner are much more than they were in the past. Given how much effort a down payment is renting and investing certainly has its strengths.

The problem now is finding affordable housing. If people can’t afford to live, then you won’t have many new people to hire. This is a problem that don’t be solved any time soon. Maybe when the Boomers start dying off we’ll get more housing. But builders really need to build.

Around me I see more rental properties going up than homes. But they’re tiny.

The other bit is that homes are piggy banks for a lot of people. They wouldn’t save otherwise.

On the topic of rent control, I found this study. I haven’t done a deep dive yet. But it’s eye opening.

https://economics.mit.edu/sites/default ... 202014.pdf

Rent control is ideal for a lifetime renter than doesn’t own. Unrestricted price increases will eventually catch up to their fixed income.

A lot really does depend on policy supports. Some form of rent control and supply stimulation for rentals, plus some kind of reversal for the tax and debtor protection for mortgages, would make long-term renting much better.

[livingalmostlarge]

For the Tj, aj76er, meowcat, feralcat, glacierrunner,luminous, JD2775 the life long renters.

have you ever done a cost analysis of the place you are renting what it has cost to own where you live? I'm curious if you have spreadsheets if you could put the numbers on here and explain the price of the home when you started renting, the year, and we'll make assumptions for the landlord. Then your rental rate, the downpayment we'll make equivalent and deposit into a S and P index fund and then the rent from the past 10+ years you should also know what you have been paying.

Then we calculate a rent controlled apartment with renters who invest the difference between a mortgage and rent for the time you've been renting and then we finalize with any current appreciation. Since you've kept spreadsheets it should be easy to see also based on address what the house you've been renting if it was worth buying or if the rental was better.

TJ lives coastal which means that it's likely the people who own have seen some serious appreciation which will weigh heavily on the side of owning. But how long have you lived and not moved? Have you moved as a renter and if you are spreadsheet driven have you calculated how much rent each time you've moved?

Also an interesting note is there are many FIRE people now. And people who FIRE many pay off their homes faster. Another part of the equation is not looked at are people who buy homes and pay them off in say less than 15 years. Then their housing costs (especially in MCOLA or LCOLA) are done. Then how does that affect the rent buy situation?

[tj]

For the Tj, aj76er, meowcat, feralcat, glacierrunner,luminous, JD2775 the life long renters.

I'm not a life long renter. I literally said that I owned when it was most cost efficient to do so.

I bought in inland empire California in 2010 for 135k, sold for 210k in 2015. Looks like whoever bought it still owns it.

I bought in 2017 in Phoenix, paid $46k, sold in 2021 for $60k. Next person sold in 2022 for $120k. Dumb luck.

Bought again in Phoenix in 2022 for 262k, sold in 2023 for 282k.


I pay $1900/mo for rent currently. I paid $1695/mo in a different coastal city in 2021. I paid $1600/mo in Hawaii in 2019. I don't think I paid more than $1k on rent the previous times that I rented, but I had roommates.

I don't seek some badge of honor to rent "for life", I will own when it's advantageous to do so.

I wish I bought in coastal California in 2010 instead of the inland empire, not for crazy appreciation, but because I would have been able to afford to own here back then on my then salary, but I didn't want a long commute, as I worked in the inland empire, such is life.

if I were to buy a $1M property, I'd not only be stuck with a mortgage for a long time, I'd be paying property taxes that are more than rent in some other places. I don't see coastal CA as a long term landing point for me, but I'll enjoy it while I can. I like that I have the flexibility to move around for job and life opportunities.

[Visual Artist]

As a life long renter up to now - 62 - I’m reading the posts with some interest. To me renting vs buying is more of a lifestyle choice than an investment decision. In my particular case, living in HCOL areas and looking for an urban lifestyle I could never afford buying in an area that was desirable to me; I didn’t want to live in a neighborhood where I was afraid to walk around or spend hours driving to and from work living in some cultural wasteland. By renting I could afford to live in an area I was happy with. We’ve now lived in the same rent controlled townhouse apartment for 12 years and each year it gets “cheaper” compared to surrounding rentals due to rent control, so we’re sort of stuck here unless we decide to relocate to a LCOL area.

So did you save the difference between rent and buying? What do you pay to rent? What is the going rent now? What was it to buy 12 years ago the price of the townhouse?

I think it would be avery interested perspective since you are a life long renter with the knowledge of rent from 12 years ago and the current rent in surrounding areas. You can also tell us probably what it would have cost to buy 12 years ago and what it would cost now.

Yes - I've been frugal and saved over the years - but the reason I never bought is I could not afford to buy in an area I wanted to live in, but I could afford to rent there. We currently pay $1635 for a small 2 bed/1bath with a small garage in a HCOL urban area. It was $1300 when we moved in 12 years ago. The apartment is under rent control where rent increases are restricted to the city's annual rate of inflation (no lower than 3% or higher than 8%) the actual rate is decided by the city yearly. Since 2020 there's been a moratorium in place with no rent increases allowed, which expires in Jan 2024. You would be hard pressed to find similar townhouse apartments or even any 2 bed/1 bath apartments in the area for under $3000. Since we moved into the apartment we've seen yearly 3% rent increases except during the moratorium 2020-2023. Most of my life I've lived in apartments where there were no annual rent increases. When we received our first rent increase at this apartment in 2012, a year after we moved in, we began searching for a place to buy. As I remember it, the payments would have amounted to at least double of our rent, but the bigger problem was that they were located in undesirable areas. Either too long a commute to work/cultural activities or where I would not feel comfortable taking my daily hour-long walk around the neighborhood.

[Swmi8675309]

It depends on the specifics of the house in question. One way of simplifying the question is to think about how much you'd be earning as a landlord. If you were on the other side of the transaction - the investor/landlord - how much would you be able to make, after all costs/taxes have been paid off, were you to rent the place out?

Housing markets are so specific and so local that buying in one place could be a very good idea when it isn't in another location.

But homeowners, in my experience, usually over-state their housing returns as an "investment." I have friends who boast about how much their house has appreciated. I don't bother pointing out that they are miscalculating the return on investment because they didn't include the up-front significant renovation cost - as well as all the other frictional costs of transaction - in the original purchase price of the house when they did a simple calculation of how much the house has appreciated by.

The main redeeming feature of housing, for me, is leverage. If you only put down 20% and home prices appreciate, you'd make quite a bit. That works especially well if you're a landlord, and less well if you're just living in an owner-occupied property and consuming the entirety of the imputed rents. People lose their minds when it comes to houses. You don't hear anyone saying - "my expensive Tesla is a better investment than the cheaper Toyota". Both are cars and both get you where you need to go, but one's more expensive. It's an obvious expense. Same with homes. Everyone needs a certain standard of housing, but anything beyond that is mostly consumption. If owner-occupied properties were really such great investments, then you could just buy the largest mansion you could afford and treat it like an "investment" and hope it appreciates.

Renting for life is fine as long as you're saving any difference and living within your means. All those surveys about homeowners building more wealth have got it a bit ass-backward. Poor people can't afford to buy their homes whereas middle-class folks can; so it's not that homeownership builds wealth but owning a home e about reflects your wealth-building potential. It's rarer to have people who can afford to buy a home but do not, and in those scenarios, it's not clear who comes out ahead.

I agree with you about people having a home shows they have wealth building potential rather than it being the cause of their wealth.

[AlwaysLearningMore]

My in-laws have been in their home over 50 years but that remains the exception.

The average time to stay in one home is only around 8 years here in the USA:

https://www.thezebra.com/resources/home ... ownership/

In that time there's little principal repayment on a standard 30-year mortgage so most homeowners are just renting from the bank.

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

This scenario makes it sound like renters are so flush with cash they have fully-funded 401(k) plans, fully-funded emergency funds, and plump taxable accounts. Having personally been involved with many facets of residential and commercial real estate for decades, I can tell you that has not been my experience. YMMV

[petulant]

Did you read the article you posted? The median was 7 years decades ago - it's now 12 to 13 years and increasing. If you plan to be below median - maybe renting works out better. But for those of us that are above median - it sure feels good not to have thrown money into something other than rent for 25+ years

Even after 13 years, for a 30-year mortgage relatively little principal has been paid back.

So, again, most homeowners end up simply renting...from their mortgage lender.

You effectively have rent control, and your loan is leveraged. It’s the leveraged bit that gets people into trouble when they rent versus own. You’re not paying the full price up front. You’re paying some fraction of its value. This is all you could have alternatively invested. The next bit would be repair costs. However, I’d argue that a renter would eat a lot of this up in moving costs if they don’t stay put.

Rents by me have more than doubled over a 20 year period. A $650 apartment now costs $1800.

So here is what happens. The renter invests in theory a down payment on a home. So they get appreciation over the buyer of this amount. Now, in order to do that, the renter is subject to rent increases. In my neck of the woods, that renter would see their rent go up over the last 20 years by the above. And home prices went up around the same percentage.

So after 20 years, the buyer has their appreciation along with their principal payments. The renter now has higher rent and the appreciation of the down payment. They also experienced rent increases over that time period meaning that the buyer had better monthly cash flows offset by maintenance. The maintenance would have to be really bad. Otherwise the owner can be applying the difference in rent and mortgage to investments.

Unless the renter has rent control, how do they win?

Not all rent increases are a knock on the renter. Presumably some portion of the rent increases are tied to increases in costs that would be bourn by a homeowner--maintenance, sure, but also property insurance and property taxes.

Also, it a strong assumption that the owner might have money left over relative to the renter after paying mortgage, property taxes, and insurance above the difference in rent. That is only true in some low-cost markets, especially now that mortgage rates are around 7 percent. It is not true in a lot of markets. So the renter gets to add even more cashflow to the portfolio alternative.

In a sense, also, the homeowner isn't hedging all rental costs. They are only hedging maybe 30-60% of the rental costs, depending on the numbers. So the renter only needs to save up an alternative asset to cover that reduced share of rent.

This scenario makes it sound like renters are so flush with cash they have fully-funded 401(k) plans, fully-funded emergency funds, and plump taxable accounts. Having personally been involved with many facets of residential and commercial real estate for decades, I can tell you that has not been my experience. YMMV

Of course, but you have to control for the household income. A household with a $50,000 per year income isn't going to get rich renting and it's also going to be the most exposed to idiosyncratic risk in a house. A household with a $200,000 per year income can "save the rest" by a lot renting and can just as well buy a house--I would wonder if they're likely to be tempted to buy too much house and get caught if somebody loses their job.

[luminous]

For the Tj, aj76er, meowcat, feralcat, glacierrunner,luminous, JD2775 the life long renters.

have you ever done a cost analysis of the place you are renting what it has cost to own where you live? I'm curious if you have spreadsheets if you could put the numbers on here and explain the price of the home when you started renting, the year, and we'll make assumptions for the landlord. Then your rental rate, the downpayment we'll make equivalent and deposit into a S and P index fund and then the rent from the past 10+ years you should also know what you have been paying.

Then we calculate a rent controlled apartment with renters who invest the difference between a mortgage and rent for the time you've been renting and then we finalize with any current appreciation. Since you've kept spreadsheets it should be easy to see also based on address what the house you've been renting if it was worth buying or if the rental was better.

TJ lives coastal which means that it's likely the people who own have seen some serious appreciation which will weigh heavily on the side of owning. But how long have you lived and not moved? Have you moved as a renter and if you are spreadsheet driven have you calculated how much rent each time you've moved?

Also an interesting note is there are many FIRE people now. And people who FIRE many pay off their homes faster. Another part of the equation is not looked at are people who buy homes and pay them off in say less than 15 years. Then their housing costs (especially in MCOLA or LCOLA) are done. Then how does that affect the rent buy situation?

We started renting our current 4 bedroom apartment in 2008. At that time it was $2500/month, and buying an equivalent condo was honestly out of reach for us. There is a condo I tracked, a block where we live, sold for $630,000 in 2010, a bit smaller than our apartment. $200/month HOA. We did not have 20% downpayment for that at the time, so we would have been paying PMI for a while. My spreadsheet says we would have been paying about $1000 more per month (even after tax savings) which was a tall order, would have dropped our after-tax savings to zero and reduced our retirement savings, and that's if nothing went wrong with the property that needed fixing.

That condo just sold for $1.16M. We have rent control so our rent is now $2900/month. If I add up my real rent over the years, and my guess about the mortgage, taxes, insurance, maintenance, hoa, etc, I'd have spent $240k more to own the condo. So then we have the leveraged value of the 10% downpayment, which would have gone from $63k to $530k. Vanguard tells me that over the last 10 years my portfolio with them (mostly in taxable brokerage) has an annualized rate of return of 8.4%, so that $63k is worth about $180k in my brokerage now. So I add that all up and I'd be about $100k ahead owning the condo, over 13 years. Not life changing.

My landlord bought the four unit building we live in for $850k in 2003, then did a ton of work on it (refinishing floors, redoing the kitchens and bathrooms) before renting the units out. They are all rent controlled. He owns multiple buildings in the city, has his own maintenance crew, and they have done good work on our unit when needed. He's definitely making money even though long term tenants like us aren't paying market rate.

[livingalmostlarge]

We started renting our current 4 bedroom apartment in 2008. At that time it was $2500/month, and buying an equivalent condo was honestly out of reach for us. There is a condo I tracked, a block where we live, sold for $630,000 in 2010, a bit smaller than our apartment. $200/month HOA. We did not have 20% downpayment for that at the time, so we would have been paying PMI for a while. My spreadsheet says we would have been paying about $1000 more per month (even after tax savings) which was a tall order, would have dropped our after-tax savings to zero and reduced our retirement savings, and that's if nothing went wrong with the property that needed fixing.

That condo just sold for $1.16M. We have rent control so our rent is now $2900/month. If I add up my real rent over the years, and my guess about the mortgage, taxes, insurance, maintenance, hoa, etc, I'd have spent $240k more to own the condo. So then we have the leveraged value of the 10% downpayment, which would have gone from $63k to $530k. Vanguard tells me that over the last 10 years my portfolio with them (mostly in taxable brokerage) has an annualized rate of return of 8.4%, so that $63k is worth about $180k in my brokerage now. So I add that all up and I'd be about $100k ahead owning the condo, over 13 years. Not life changing.

My landlord bought the four unit building we live in for $850k in 2003, then did a ton of work on it (refinishing floors, redoing the kitchens and bathrooms) before renting the units out. They are all rent controlled. He owns multiple buildings in the city, has his own maintenance crew, and they have done good work on our unit when needed. He's definitely making money even though long term tenants like us aren't paying market rate.

So $100k with a rent controlled apartment. What is the going rate of your apartment now in fair market value? If you had no rent control and FMV throughout this time period how much more than $100k would it have been?

Also $600k @ 3% assuming 10% is $2500 so where would the extra $1000 have come from? Property taxes, HOA, and PMI? Then the mortgage deduction of 25% would have brought it back down to around $2700/month fixed from2010 so I'm not sure your calcuations are correct.

Also you aren't assuming the paying of principal down during this time from 2010 to 2023? Look at the amortization chart and while there is leverage on the $63k to $530k, how much would have also have been an enforced savings account? According to June 2010 it would be $438k from $600k. So an extra $162k in principal paydown on top of the $100k on top of the tax break. So typically renters have to also save the difference in principal payment.

The tax break I realize would have been mitigated after 2017 potentially but until then with property taxes, state income taxes, mortgage and PMI you likely are sitting a nice itemization deduction.

[unwitting_gulag]

It depends on the specifics of the house in question. One way of simplifying the question is to think about how much you'd be earning as a landlord. If you were on the other side of the transaction - the investor/landlord - how much would you be able to make, after all costs/taxes have been paid off, were you to rent the place out?

This is a bit of a fraught comparison, because successful landlords are wily operators who manage to score deals. Currently I rent a small apartment in a mom-and-pop building, where the landlord lives on-site. The landlord bought the building at a screaming deal, decades ago, when this area was sorely distressed. Proposition-13 nicely caps his property taxes. He is doing very well for himself, even with rent-control. But if he were to sell the building to me today, at market-rates, then there's absolutely no way that I'd be cash-flow positive, even if I could raise the rent (on the other tenants). Phrased another way, if I were to buy a similar mom-and-pop building, or a SFH, then the rental proceeds would be far below the PITI, even at 2021-level mortgage rates, let alone at present rates.

A second point merits mention - though it often gets neglected. Remember my mentioning renting a small apartment? I'd never consider buying a similar condo. Instead I'd buy a SFH, and probably a substantial one. So the real rent-vs-buy comparison isn't between comparable properties, but quite literally a 5X or more difference in square footage. The monthly cost of carrying the purchased house would be far, far higher than monthly rent! However, buying might still make sense, purely as a capital gains play...

... Which brings us to "renters' remorse". It isn't that I really wish to have been living the more expansive lifestyle of a homeowner... or that I believe that owning is more economically on a monthly basis. Rather, I envy the capital gains enjoyed in recent years by homeowners. That is all.

[Nate79]

It depends on the specifics of the house in question. One way of simplifying the question is to think about how much you'd be earning as a landlord. If you were on the other side of the transaction - the investor/landlord - how much would you be able to make, after all costs/taxes have been paid off, were you to rent the place out?

This is a bit of a fraught comparison, because successful landlords are wily operators who manage to score deals. Currently I rent a small apartment in a mom-and-pop building, where the landlord lives on-site. The landlord bought the building at a screaming deal, decades ago, when this area was sorely distressed. Proposition-13 nicely caps his property taxes. He is doing very well for himself, even with rent-control. But if he were to sell the building to me today, at market-rates, then there's absolutely no way that I'd be cash-flow positive, even if I could raise the rent (on the other tenants). Phrased another way, if I were to buy a similar mom-and-pop building, or a SFH, then the rental proceeds would be far below the PITI, even at 2021-level mortgage rates, let alone at present rates.

A second point merits mention - though it often gets neglected. Remember my mentioning renting a small apartment? I'd never consider buying a similar condo. Instead I'd buy a SFH, and probably a substantial one. So the real rent-vs-buy comparison isn't between comparable properties, but quite literally a 5X or more difference in square footage. The monthly cost of carrying the purchased house would be far, far higher than monthly rent! However, buying might still make sense, purely as a capital gains play...

... Which brings us to "renters' remorse". It isn't that I really wish to have been living the more expansive lifestyle of a homeowner... or that I believe that owning is more economically on a monthly basis. Rather, I envy the capital gains enjoyed in recent years by homeowners. That is all.

If you would buy a substantially larger house than your current living arrangement then you are choosing to save money over personal enjoyment. That's fine but that also comes at a cost.

[tj]

It depends on the specifics of the house in question. One way of simplifying the question is to think about how much you'd be earning as a landlord. If you were on the other side of the transaction - the investor/landlord - how much would you be able to make, after all costs/taxes have been paid off, were you to rent the place out?

This is a bit of a fraught comparison, because successful landlords are wily operators who manage to score deals. Currently I rent a small apartment in a mom-and-pop building, where the landlord lives on-site. The landlord bought the building at a screaming deal, decades ago, when this area was sorely distressed. Proposition-13 nicely caps his property taxes. He is doing very well for himself, even with rent-control. But if he were to sell the building to me today, at market-rates, then there's absolutely no way that I'd be cash-flow positive, even if I could raise the rent (on the other tenants). Phrased another way, if I were to buy a similar mom-and-pop building, or a SFH, then the rental proceeds would be far below the PITI, even at 2021-level mortgage rates, let alone at present rates.

A second point merits mention - though it often gets neglected. Remember my mentioning renting a small apartment? I'd never consider buying a similar condo. Instead I'd buy a SFH, and probably a substantial one. So the real rent-vs-buy comparison isn't between comparable properties, but quite literally a 5X or more difference in square footage. The monthly cost of carrying the purchased house would be far, far higher than monthly rent! However, buying might still make sense, purely as a capital gains play...

... Which brings us to "renters' remorse". It isn't that I really wish to have been living the more expansive lifestyle of a homeowner... or that I believe that owning is more economically on a monthly basis. Rather, I envy the capital gains enjoyed in recent years by homeowners. That is all.

Why would you get a massive house and never get a small condo?

[unwitting_gulag]

Why would you get a massive house and never get a small condo?

Not "massive", but maybe 1500-1800 sq ft, with a garage and a yard... compare that to a studio apartment, which might be 300 sq ft.

Why not a condo? Because in my reckoning, condos combine the worst of both worlds. Like houses, they involve real estate speculation...the gamble that the property will increase in value long-term. They require down payments and mortgages, or a cash outlay. They have a high transaction cost, when it's time to sell. Like apartments, there are shared walls, hallways and staircases. There's no place to work on cars, to have backyard parties, to spread out outdoors. And there's inevitably a HOA fee, whereas if one is careful with a free-standing house, there's no HOA.

As others have noted, there is a tradeoff between economizing (small apartment) and enjoyment (decent-sized house). However, there are markets and situations where one gets paid to also have the enjoyment... namely, a burgeoning market where a house is a handsome capital-gains play, even if there are high taxes or maintenance costs. This is, to say the least, hard too predict... which is why I keep equating the risk to that of buying a single stock, as opposed to an index fund.

One might interject, that a clever and frugal homeowner might take in lodgers, tenants, room-mates.... thus trading space/privacy for cashflow. That is possible, but it requires business-skills and social skills, not unlike those of a landlord in a mom-and-pop apartment building. Meanwhile in an apartment, two room-mates could split costs without feeling that one is the "tenant" and the other the "landlord". It's a more equal relationship, and hence much easier to facilitate, than if say one of the occupants is the owner of a condo, and the other, the rent-paying tenant.

[livingalmostlarge]

The point of paid down principle hasn't been addressed either for those who rent instead of owning.