Paying cash for a house vs rent in retirement

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AlaskaTeach
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Paying cash for a house vs rent in retirement

Post by AlaskaTeach »

I keep having this fantasy of someday in retirement paying cash for a house, as opposed to renting my entire retired life. Not interested in any mortgage, but I am an extremist. I like the idea of finding a sub $150k house in rural Texas, and paying cash for it. These exist now, don't know about future cost.

I am 59 now. Projecting I am 68 years old, net worth of about 700k, and annual retirement pension is $45k, SS 8k. Assume I die at age 83 and receive an inheritance of $300k at age 72. Predict cost at age 68 to be $200k. What am I looking at in additional costs? 2-3% total added on to the price for closing costs?

Guess 206k, all in. Rent for 15 years- assume 20k per year = 300k. 206k looking pretty good, plus heirs can sell house when I am gone.

Assume annual maintenance of house $2000 and insurance of $1000. Owned a home years ago and spent nowhere close to that number, much lower. Property taxes have been "reformed" in Texas, so assume $2k per year.

So math is 206k plus 30k maintenance plus 15k insurance plus 30k property taxes = 281k. Compared to rent of 300k? With those numbers renting still comes out ahead, except for at death someone gets to sell the property and do pretty well.
runswithscissors
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Re: Paying cash for a house vs rent in retirement

Post by runswithscissors »

Oftentime the big downside of being in a rural location is access to amenities like shopping and healthcare. How far away is the nearest clinic? Regional hospital? Also depending on the location and climate, driving could be more challenging (or impossible) during certain times of the year. The thought of having a nice big yard might be attractive in your 60s but maintaining the land is likely to become a bigger burden over time.
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AlaskaTeach
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Re: Paying cash for a house vs rent in retirement

Post by AlaskaTeach »

I should have said rural/small to medium sized city in a rural area. There is a mid-size city I just checked on realtor.com and houses can be had in the city for under 150k. There is a hospital in the city, not sure how comprehensive it is, but is rated #24 hospital in Texas.

Normal city lot, not big lot.

We're talking 1000+ s. f. central heat central air, not the most popular city in Texas, but does have at least three seasons, which is quite rare for Texas. I have only lived in a place with at least three seasons one time that I can remember, and that was Sherman TX, about 60 miles north of Dallas. We have a picture of our oldest child as a baby in a carrier sitting on snow. Fun times!
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

On the whole owning a place with some space is going to be nicer in retirement than being stuck as a renter.

Yes distance from services can be an issue, but it is easier to keep driving when you don't have to battle city traffic.

Renting has the overwhelming disadvantage of unknown costs. My rent went up 25% one year and 10% the next. In retirement a couple such increases on a limited income would be devastating.
Society grows great when old men plant trees whose shade they shall never sit in
gotoparks
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Re: Paying cash for a house vs rent in retirement

Post by gotoparks »

One thing is people give up driving when older. It is something to consider. My mom stopped driving and now pays neighbors to take her places. They are not always reliable because they are older also and have health problems, etc. My sister and I have been taking her to doctors appointments. My aunt got into an accident that was her fault and wants to stop driving. She also has health problems which she never had before. The problem with her is she lives on a country road with no other way to get around besides driving. She won't move to a senior apartment so is becoming stuck.
avalpert1
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Re: Paying cash for a house vs rent in retirement

Post by avalpert1 »

rogue_economist wrote: Fri May 10, 2024 1:34 am Renting has the overwhelming disadvantage of unknown costs. My rent went up 25% one year and 10% the next. In retirement a couple such increases on a limited income would be devastating.
Um, owning a house has a much higher capacity for unknown costs than renting... replacing that leaking roof or all your windows, how about that burst sprinkler head in the finished basement, oops looks like we have foundation issues...
avalpert1
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Re: Paying cash for a house vs rent in retirement

Post by avalpert1 »

AlaskaTeach wrote: Fri May 10, 2024 12:47 am I keep having this fantasy of someday in retirement paying cash for a house, as opposed to renting my entire retired life. Not interested in any mortgage, but I am an extremist. I like the idea of finding a sub $150k house in rural Texas, and paying cash for it. These exist now, don't know about future cost.

I am 59 now. Projecting I am 68 years old, net worth of about 700k, and annual retirement pension is $45k, SS 8k. Assume I die at age 83 and receive an inheritance of $300k at age 72. Predict cost at age 68 to be $200k. What am I looking at in additional costs? 2-3% total added on to the price for closing costs?

Guess 206k, all in. Rent for 15 years- assume 20k per year = 300k. 206k looking pretty good, plus heirs can sell house when I am gone.

Assume annual maintenance of house $2000 and insurance of $1000. Owned a home years ago and spent nowhere close to that number, much lower. Property taxes have been "reformed" in Texas, so assume $2k per year.

So math is 206k plus 30k maintenance plus 15k insurance plus 30k property taxes = 281k. Compared to rent of 300k? With those numbers renting still comes out ahead, except for at death someone gets to sell the property and do pretty well.
Sure, if you are comparing a $150k house to $20k in rent you are looking at a market where owning is likely going to turn out better (though do you have any heirs you want to get your assets in the end?) - but I'm not sure how realistic that is these days. Maybe in the rural areas you are thinking of that is the right comparison.
Escapevelocity
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Re: Paying cash for a house vs rent in retirement

Post by Escapevelocity »

avalpert1 wrote: Fri May 10, 2024 9:01 am
rogue_economist wrote: Fri May 10, 2024 1:34 am Renting has the overwhelming disadvantage of unknown costs. My rent went up 25% one year and 10% the next. In retirement a couple such increases on a limited income would be devastating.
Um, owning a house has a much higher capacity for unknown costs than renting... replacing that leaking roof or all your windows, how about that burst sprinkler head in the finished basement, oops looks like we have foundation issues...
Yes this is true and also the renter has the option to move out if an unfair rent increase is imposed although moving costs would be a consideration.
Claudia Whitten
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Re: Paying cash for a house vs rent in retirement

Post by Claudia Whitten »

Escapevelocity wrote: Fri May 10, 2024 9:18 am Yes this is true and also the renter has the option to move out if an unfair rent increase is imposed although moving costs would be a consideration.
Moving is probably the world's worst experience/job for many. At the least it's incredibly stressful, especially in older age. So while moving as a renter is always an option, it's such an unpleasant option that it becomes a last resort.

https://www.caring.com/answers/what-eff ... e-elderly/

I'm not really arguing for either side in the renting vs. owning debate in retirement. It's tough either way unless money is no object.
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

avalpert1 wrote: Fri May 10, 2024 9:01 am
rogue_economist wrote: Fri May 10, 2024 1:34 am Renting has the overwhelming disadvantage of unknown costs. My rent went up 25% one year and 10% the next. In retirement a couple such increases on a limited income would be devastating.
Um, owning a house has a much higher capacity for unknown costs than renting... replacing that leaking roof or all your windows, how about that burst sprinkler head in the finished basement, oops looks like we have foundation issues...
Those costs are not "unknown", you know what condition the roof is in, there isn't a reason why you suddenly need to replace every window (unless you want to), etc. You can foresee and in many cases prevent these things. Furthermore, even a large expense is unlikely to be the equivalent of a permanent 35% increase in your housing costs in a 2 year period.
Society grows great when old men plant trees whose shade they shall never sit in
avalpert1
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Re: Paying cash for a house vs rent in retirement

Post by avalpert1 »

rogue_economist wrote: Fri May 10, 2024 9:42 am
avalpert1 wrote: Fri May 10, 2024 9:01 am
rogue_economist wrote: Fri May 10, 2024 1:34 am Renting has the overwhelming disadvantage of unknown costs. My rent went up 25% one year and 10% the next. In retirement a couple such increases on a limited income would be devastating.
Um, owning a house has a much higher capacity for unknown costs than renting... replacing that leaking roof or all your windows, how about that burst sprinkler head in the finished basement, oops looks like we have foundation issues...
Those costs are not "unknown", you know what condition the roof is in, there isn't a reason why you suddenly need to replace every window (unless you want to), etc. You can foresee and in many cases prevent these things. Furthermore, even a large expense is unlikely to be the equivalent of a permanent 35% increase in your housing costs in a 2 year period.
Have you ever owned a house? If only every cost that pops up was known and foreseeable...
Sprucebark
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Re: Paying cash for a house vs rent in retirement

Post by Sprucebark »

I had a coworker who was nearing retirement and bought a second house for his eventual golden years- except it was $800k. And he sold his s&p 500 stock so he could pay cash to “save interest”. Interest rates were around 6 or 7% then I believe.

Since then the s&p has gone up about 40%, so the coworker lost out on $320k in paper gains. But he doesn’t have to pay any interest;).

Oh and within a year he had some major hvac failures and had some huge trees that were growing against the roof that needed cut down- about $30k in unexpected expenses. It’s incredible what tree companies charge when they have to use a crane and do delicate work above a house.
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

avalpert1 wrote: Fri May 10, 2024 9:49 am Have you ever owned a house? If only every cost that pops up was known and foreseeable...
You don't need to own a house to know that this "dramatic unforeseen cost" line is exaggerating. Most costs are either minor or both foreseeable and known. Major ones that aren't are generally covered by insurance. And unlike rent where you have to fork over exactly what they say to keep a roof over your head, home costs can be priced to multiple contractors or you can act as general contractor and subcontract. Or DIY and cut costs to materials.
Society grows great when old men plant trees whose shade they shall never sit in
avalpert1
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Re: Paying cash for a house vs rent in retirement

Post by avalpert1 »

rogue_economist wrote: Fri May 10, 2024 10:01 am
avalpert1 wrote: Fri May 10, 2024 9:49 am Have you ever owned a house? If only every cost that pops up was known and foreseeable...
You don't need to own a house to know that this "dramatic unforeseen cost" line is exaggerating.
So that's a no... It is exactly as exaggerating as 'permanent 35% rent increase in 2 years'.

The idea that an asset owner has less financial risk than an asset renter is quite odd to hear coming from even a rogue economist.
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

Sprucebark wrote: Fri May 10, 2024 9:56 am I had a coworker who was nearing retirement and bought a second house for his eventual golden years- except it was $800k. And he sold his s&p 500 stock so he could pay cash to “save interest”. Interest rates were around 6 or 7% then I believe.

Since then the s&p has gone up about 40%, so the coworker lost out on $320k in paper gains. But he doesn’t have to pay any interest;).

Oh and within a year he had some major hvac failures and had some huge trees that were growing against the roof that needed cut down- about $30k in unexpected expenses. It’s incredible what tree companies charge when they have to use a crane and do delicate work above a house.
Yes, but the S&P could go down 40% tomorrow and wipe the whole thing out. Hindsight is worthless. The interest saved is a guarantee, not a speculation. To take the loan and keep the stock is the equivalent of leveraging a stock portfolio, hardly a risk reduction strategy for someone entering into retirement.

He bought a house with trees growing against the roof, that was a potential issue that was hardly unforeseeable. Still $30k is far too much for that kind of work.
Society grows great when old men plant trees whose shade they shall never sit in
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

avalpert1 wrote: Fri May 10, 2024 10:06 am So that's a no...
False, I did not say either way because it is not germane to the question at hand. Not your concern.
avalpert1 wrote: Fri May 10, 2024 10:06 am It is exactly as exaggerating as 'permanent 35% rent increase in 2 years'.
Again patently false. That is exactly what happened to my rent in the last 2 years. 25% increase one year, and 10% the next. That increase in cost is permanent, they are not going to randomly lower it next year.
avalpert1 wrote: Fri May 10, 2024 10:06 am The idea that an asset owner has less financial risk than an asset renter is quite odd to hear coming from even a rogue economist.
We are not talking about any "asset owner" we are talking about the owner of a singe family home. That is not your typical asset. We are talking about something that has had very consistent appreciation as a financial asset that also provides you shelter which is the largest single expense consumers bear. An asset renter has zero price security beyond the date of their lease.
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avalpert1
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Re: Paying cash for a house vs rent in retirement

Post by avalpert1 »

rogue_economist wrote: Fri May 10, 2024 10:13 am
avalpert1 wrote: Fri May 10, 2024 10:06 am It is exactly as exaggerating as 'permanent 35% rent increase in 2 years'.
Again patently false. That is exactly what happened to my rent in the last 2 years. 25% increase one year, and 10% the next. That increase in cost is permanent, they are not going to randomly lower it next year.
That doesn't make what I said false... You are the only one here who insists large unanticipated costs never pop-up for homeowners. You also assume rents never decrease, which is also objectively untrue.
avalpert1 wrote: Fri May 10, 2024 10:06 am The idea that an asset owner has less financial risk than an asset renter is quite odd to hear coming from even a rogue economist.
We are not talking about any "asset owner" we are talking about the owner of a singe family home. That is not your typical asset. We are talking about something that has had very consistent appreciation as a financial asset that also provides you shelter which is the largest single expense consumers bear. An asset renter has zero price security beyond the date of their lease.
Again, this is quite odd to hear coming from even a rogue economist. A SFH is very much a typical asset, appreciation isn't any more consistent than other fixed assets as far as I'm aware, and it is not the only fixed asset that provides a service to its owner (thus why one would rent them in the first place).
An asset owner has zero price security beyond the purchase date (with financial exposure equal to their equity in the asset and any recourse debt the asset serves as collateral for) - that's more risk than the renter...
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BrooklynInvest
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Re: Paying cash for a house vs rent in retirement

Post by BrooklynInvest »

OP,

My question would be the specifics of renting in that particular location. The economics could go either way and you could be better or worse off - it would depend on the exact location, timing and any number of externalities. I would imagine that if you have heirs and want to leave them something, buying might be a better option.

I have a hard time imagining massive rent hikes in any somewhat rural location but I'm a million miles from that. In Texas homeowners insurance is going through the roof. Although technically you're paying that directly if you own and indirectly if you rent so a wash in the long run.

But as you age, the problem with renting might be a lack of control. As others have said, if your rent goes up or the homeowner decides to move back (that's a specific scenario I grant) you're perhaps more at the mercy of outside forces? That's one thing at 25 - we would throw our stuff in a u-haul and find a new place. It's entirely another at 80.

Good luck OP,
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

avalpert1 wrote: Fri May 10, 2024 10:28 am That doesn't make what I said false... You are the only one here who insists large unanticipated costs never pop-up for homeowners. You also assume rents never decrease, which is also objectively untrue.
What you said about the rent being exaggerated is patently false, and that is what that is referring to.
You are straw manning here, I never said "large unanticipated costs never pop-up for homeowners" never happen, just that you are exaggerating them which you are.

Rents in any area you would want to live in are not going to be decreasing, Never once as a renter have I had the rent go down, every offer to resign is higher that what I was paying. Always. Corporate landlords have sophisticated pricing algorithms which know that existing renters are adverse to move and they use that against you. Even if the market price hasn't gone up they will still try and extract every last ounce of consumer surplus from you. If you try to negotiate they will just say no.
avalpert1 wrote: Fri May 10, 2024 10:06 am Again, this is quite odd to hear coming from even a rogue economist. A SFH is very much a typical asset, appreciation isn't any more consistent than other fixed assets as far as I'm aware, and it is not the only fixed asset that provides a service to its owner (thus why one would rent them in the first place).
SFH is not a typical asset, and to claim it is is hilarious. You get to borrow 30 year fixed money to buy it, it has numerous tax and asset protection features, and it provides housing. You cannot live in your REIT, stock portfolio, gold bars, bonds, or money market account. But you can live in a house.
avalpert1 wrote: Fri May 10, 2024 10:06 am An asset owner has zero price security beyond the purchase date (with financial exposure equal to their equity in the asset and any recourse debt the asset serves as collateral for) - that's more risk than the renter...
Again, patently false. As long as the mortgage is fixed rate the payment is the same for 30 years. If you pay cash the payment is fixed for life, $0.
Insurance is there to protect your equity, which incidentally is also well shielded in bankruptcy. Whatever risk there is pales in comparison to the renter, who is one large price increase away from being homeless.
Society grows great when old men plant trees whose shade they shall never sit in
Claudia Whitten
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Re: Paying cash for a house vs rent in retirement

Post by Claudia Whitten »

rogue_economist wrote: Fri May 10, 2024 10:06 am Yes, but the S&P could go down 40% tomorrow and wipe the whole thing out. Hindsight is worthless. The interest saved is a guarantee, not a speculation.
+1. I will never tell anyone it's a bad idea to pay off a loan. Mortgage interest is horrible--and guaranteed so long as you hold the loan.
bloom2708
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Re: Paying cash for a house vs rent in retirement

Post by bloom2708 »

An older $150k house will need a new roof and a new furnace/AC system sometime soon. A paid off mortgage is just part of the deal.

Property taxes just go up and up. Insurance goes up and up. Storms and floods and and and.

If you are a lifelong renter, not sure why you would change right when you don't want to do house projects and yard work and repairs.

The dream of home ownership doesn't always match reality. I recommend "almost buying". Look at the photos, pick out the "forever home" and then don't buy it. :wink:
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

bloom2708 wrote: Fri May 10, 2024 10:52 am An older $150k house will need a new roof and a new furnace/AC system sometime soon. A paid off mortgage is just part of the deal.
Put on a steel roof and OP will never have to worry about it in their lifetime. HVAC is speculative, I've seen systems from the turn of the last century still going strong.
bloom2708 wrote: Fri May 10, 2024 10:52 am Property taxes just go up and up.
Yes, but a property tax is a far smaller cost than the rent. If they really shoot up its because the area became super valuable, in which case you can always sell and go to LCOL.
bloom2708 wrote: Fri May 10, 2024 10:52 am Storms and floods and and and.
Don't buy a home that can/will flood. Good roofing and siding material should minimize any storm issues.
Society grows great when old men plant trees whose shade they shall never sit in
gips
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Re: Paying cash for a house vs rent in retirement

Post by gips »

i have a friend who moved from queens ny to chang mai thailand and loves it. I wonder if moving to a lcol city in another country might be worth exploring.
TravelforFun
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Re: Paying cash for a house vs rent in retirement

Post by TravelforFun »

AlaskaTeach wrote: Fri May 10, 2024 12:47 am So math is 206k plus 30k maintenance plus 15k insurance plus 30k property taxes = 281k. Compared to rent of 300k? With those numbers renting still comes out ahead, except for at death someone gets to sell the property and do pretty well.
How would renting be ahead in your case? You pay $300k in rent for 15 years vs. $281k by owning the house for the same time period. Plus, when you die, that $300k is gone but the house can be passed to your heirs.

TravelforFun
adamthesmythe
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Re: Paying cash for a house vs rent in retirement

Post by adamthesmythe »

As is usual, the advantages and disadvantages of owning a house are exaggerated above.

Owning the right house (in good condition, right price, right location) can be very relaxing in retirement. I wouldn't (and didn't) do otherwise.

I would say that a concern for a never-owner is not having experience with dealing with the occasional issues.
bloom2708
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Re: Paying cash for a house vs rent in retirement

Post by bloom2708 »

rogue_economist wrote: Fri May 10, 2024 11:00 am
bloom2708 wrote: Fri May 10, 2024 10:52 am An older $150k house will need a new roof and a new furnace/AC system sometime soon. A paid off mortgage is just part of the deal.
Put on a steel roof and OP will never have to worry about it in their lifetime. HVAC is speculative, I've seen systems from the turn of the last century still going strong.
bloom2708 wrote: Fri May 10, 2024 10:52 am Property taxes just go up and up.
Yes, but a property tax is a far smaller cost than the rent. If they really shoot up its because the area became super valuable, in which case you can always sell and go to LCOL.
bloom2708 wrote: Fri May 10, 2024 10:52 am Storms and floods and and and.
Don't buy a home that can/will flood. Good roofing and siding material should minimize any storm issues.
Point and counterpoint. Hail can damage a steel roof.

I just spent $2,800 for mudjacking our driveway that was sinking in a bunch of places. Kitchen faucet went bad $250. Both bathroom faucents currently being replaced. Small jobs. DIY most of the time. It all adds up over time.

The monthly cost of being in our paid off mortgage house is $900-$950. That isn't utilities. Property taxes, insurance, small HOA and the costs of being in this specific home. Maybe neither side is greener than the other, but owning a paid off home isn't a free lunch.
rogue_economist
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

bloom2708 wrote: Fri May 10, 2024 11:31 am Point and counterpoint. Hail can damage a steel roof.
You are preaching to the bishop, I replaced 6000 sq feet of hail damaged roofing a few years ago.

However, a "hail damaged" steel roof is not like a damaged shingle roof. It was perfectly functional and water tight, went through a whole winter as is and would have gone through many more.

The decision to replace was driven by aesthetics, insurance company offered to cover the whole thing and since it was a bit faded it was a nice upgrade to the home.

When we took the old steel off we sold it to another guy who was putting it on his roof to serve again. Hail damaged steel roof doesn't mean much.

Buy the stuff with the #4 impact rating and OP will never have to worry about it.
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avalpert1
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Re: Paying cash for a house vs rent in retirement

Post by avalpert1 »

rogue_economist wrote: Fri May 10, 2024 10:45 am
avalpert1 wrote: Fri May 10, 2024 10:28 am That doesn't make what I said false... You are the only one here who insists large unanticipated costs never pop-up for homeowners. You also assume rents never decrease, which is also objectively untrue.
What you said about the rent being exaggerated is patently false, and that is what that is referring to.
I didn't say it was exaggerated - I said the exaggeration was the same between them...

avalpert1 wrote: Fri May 10, 2024 10:06 am An asset owner has zero price security beyond the purchase date (with financial exposure equal to their equity in the asset and any recourse debt the asset serves as collateral for) - that's more risk than the renter...
Again, patently false. As long as the mortgage is fixed rate the payment is the same for 30 years. If you pay cash the payment is fixed for life, $0.
Insurance is there to protect your equity, which incidentally is also well shielded in bankruptcy. Whatever risk there is pales in comparison to the renter, who is one large price increase away from being homeless.
You really think the only cost in a house (or other fixed assets) are the initial one? You really think the risk of someone who owns a six figure assets is less than (let alone pales in comparison with) the risk of someone renting that asset?
THY4373
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Re: Paying cash for a house vs rent in retirement

Post by THY4373 »

I rented by choice for seven years (wasn't sure where I wanted to retire to after my divorce). I am going to say the rent rising thing is somewhat exaggerated by some here. I rented a single family home from a small time landlord and tried to be the best tenant I could be. My rent was flat for three years and then below market raises after that (that were easily within what I could afford). I did buy a home in late 2022 because my retirement plans came more into focus and I decided I wanted a place where where I could control whether and when I moved so I bought. It was a lifestyle decision. My current house is nicer than the one I rented but both are worth about the same. Without a doubt owning is costing me more than renting and it isn't even close. My rent was clearly below market but even if it wasn't owning is more expensive right now. In 20 years which would be cheaper in hindsight, I don't know and I don't care.

Other than deciding what I can afford which is financial in nature, I look at homeownership as a purely a lifestyle decision. I will also note while I love the aspect of homeownership where I feel it is more a home when I own it, I truly miss the mind-freeing aspect of renting where maintenance and repairs were somebody else's problem.

Personally if it were me I'd make the decision on which lifestyle was more appealing to you.
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Re: Paying cash for a house vs rent in retirement

Post by LittleMaggieMae »

AlaskaTeach wrote: Fri May 10, 2024 12:47 am
Assume annual maintenance of house $2000 and insurance of $1000. Owned a home years ago and spent nowhere close to that number, much lower. Property taxes have been "reformed" in Texas, so assume $2k per year.

So math is 206k plus 30k maintenance plus 15k insurance plus 30k property taxes = 281k. Compared to rent of 300k? With those numbers renting still comes out ahead, except for at death someone gets to sell the property and do pretty well.
You aren't including "inflation" in your numbers. Your insurance cost most likely will not be 1K per year for 15 years. Same with property taxes.

The 30K maintenance depends on what you will be maintaining/replacing for the 15 years you own the house. If the interior is freshly painted, the floors are freshly redone, and the roof and HVAC are brand new when you buy - you might only have one BIG lumpy expense for the house during the 15 years.
maybe windows? or a big plumbing issue - something that will cost 15K or more. you'll probably replace appliances and do "routine" maintenance which will account for the other 15K.

Some of the cost of "maintenance" may depend on where the house is and what it is subjected to (hurricane winds, flooding, beating down intense sun, high humidity, or some other local naturally occuring thing I'm not familiar with).


I would add 10% or 15% to the final numbers you use in your estimates....
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Re: Paying cash for a house vs rent in retirement

Post by unwitting_gulag »

adamthesmythe wrote: Fri May 10, 2024 11:26 am As is usual, the advantages and disadvantages of owning a house are exaggerated above.

Owning the right house (in good condition, right price, right location) can be very relaxing in retirement. I wouldn't (and didn't) do otherwise.

I would say that a concern for a never-owner is not having experience with dealing with the occasional issues.
Or, failing to observe substantial defects at time of sale, which aren't revealed during inspection. A good example is structural flaws in a foundation, covered (literally) by a "finished basement".

As you note, houses have the peculiar property, that sometimes they're a smashingly excellent purchase and storehouse of value, and something, arrantly the reverse. One could find anecdotes supporting either extreme.

In the OP's case, the stipulated cost of rent is so high, and the house purchase price is so low, then even a devastating blunder in purchasing the house, might still be financially OK. Are the OP's numbers correct? This is where more research is needed. As others have noted, it seems that today, most markets don't follow the OP's numbers. Instead, the cost of rent is considerably lower, than that of a comparable purchase. Buying then becomes a bet on long term capital appreciation.
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Re: Paying cash for a house vs rent in retirement

Post by adamthesmythe »

unwitting_gulag wrote: Fri May 10, 2024 1:31 pm Are the OP's numbers correct? This is where more research is needed. As others have noted, it seems that today, most markets don't follow the OP's numbers. Instead, the cost of rent is considerably lower, than that of a comparable purchase. Buying then becomes a bet on long term capital appreciation.
A favorable buy/ rent ratio is most likely in places that are neither good places for employment or desirable places to retire. I think small-town Texas is neither of these.
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Re: Paying cash for a house vs rent in retirement

Post by muffins14 »

rogue_economist wrote: Fri May 10, 2024 1:34 am
Renting has the overwhelming disadvantage of unknown costs. My rent went up 25% one year and 10% the next. In retirement a couple such increases on a limited income would be devastating.
I also really disagree with this.

Obviously yes rental price increasing is hard, but you can also "just move" to a cheaper place. Often a person can move to a place that is cheaper than your their place if they find discounts in the market. In our early years renting we moved every 12-18 months because the existing rent went up more than we wanted, and we got a cheaper, newer place due to incentives to move in during in-progress renovation work in larger buildings.

If your owned home needs 100k of roof repairs, you can't just move to a cheaper place, you have to fix it, or sell at a lower value than planned. At least with rent you can just walk away for a few thousand dollars. The downside risk in any given year of the owned home is much higher than the yearly downside risk of renting. Over the long term that may start to change, but it's not cut and dry.

Personally I bought, in part because I didn't want to have to move due to rent increases as I aged, but buying that protection had a high cost. Renovation and maintenance are absolutely not cheap, and maintenance and property taxes are only going to go up.
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Re: Paying cash for a house vs rent in retirement

Post by Hebell »

rogue_economist wrote: Fri May 10, 2024 10:13 am
avalpert1 wrote: Fri May 10, 2024 10:06 am So that's a no...
False, I did not say either way because it is not germane to the question at hand. Not your concern.
avalpert1 wrote: Fri May 10, 2024 10:06 am It is exactly as exaggerating as 'permanent 35% rent increase in 2 years'.
Again patently false. That is exactly what happened to my rent in the last 2 years. 25% increase one year, and 10% the next. That increase in cost is permanent, they are not going to randomly lower it next year.
avalpert1 wrote: Fri May 10, 2024 10:06 am The idea that an asset owner has less financial risk than an asset renter is quite odd to hear coming from even a rogue economist.
We are not talking about any "asset owner" we are talking about the owner of a singe family home. That is not your typical asset. We are talking about something that has had very consistent appreciation as a financial asset that also provides you shelter which is the largest single expense consumers bear. An asset renter has zero price security beyond the date of their lease.
Avalpert1, I'm with you. Houses can indeed have unforeseen expensive repairs. And no, rogue_economist, it's quite possible to have a home with no consistent price appreciation at all. Lived both scenarios, different houses I've owned, different states, different decades. Definitely more price security with renting.
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Re: Paying cash for a house vs rent in retirement

Post by muffins14 »

rogue_economist wrote: Fri May 10, 2024 10:45 am
avalpert1 wrote: Fri May 10, 2024 10:06 am Again, this is quite odd to hear coming from even a rogue economist. A SFH is very much a typical asset, appreciation isn't any more consistent than other fixed assets as far as I'm aware, and it is not the only fixed asset that provides a service to its owner (thus why one would rent them in the first place).
SFH is not a typical asset, and to claim it is is hilarious. You get to borrow 30 year fixed money to buy it, it has numerous tax and asset protection features, and it provides housing. You cannot live in your REIT, stock portfolio, gold bars, bonds, or money market account. But you can live in a house.
avalpert1 wrote: Fri May 10, 2024 10:06 am An asset owner has zero price security beyond the purchase date (with financial exposure equal to their equity in the asset and any recourse debt the asset serves as collateral for) - that's more risk than the renter...
Again, patently false. As long as the mortgage is fixed rate the payment is the same for 30 years. If you pay cash the payment is fixed for life, $0.
Insurance is there to protect your equity, which incidentally is also well shielded in bankruptcy. Whatever risk there is pales in comparison to the renter, who is one large price increase away from being homeless.
You seem to be quite combative here.

1) Yes, a SFH is a typical asset. THere are like 80 million SFH in America. A typical family owns most of them.

2) Your house insurnace doesn't protect your equity against market forces. Your house gets old and less desirable. Your neighborhood gets worn down and less desirable. The economy tanks like 2008 and your house value plummets. There is not FDIC insurance for your home's market value.

If I am a renter, I have $0 home equity. The market tanks and now I can sign a lease elsewhere for cheaper. I still have $0 home equity and a pile of investments in the bank.
If I am a home owner, I have $1M equity and then next year it could be $700k but I am sitting on an $800k mortgage. Less investments in the bank because I made a downpayment on my home.

Which person is in the riskier financial situation *at that point in time*?
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Re: Paying cash for a house vs rent in retirement

Post by TomatoTomahto »

OP, I dream of the opposite. I’ve been a homeowner for decades. We like our home, but there’s always something that needs attention and fixing. Since I’m not that handy, it means fixing at retail. I fantasize about a 3BR apartment in the city.

My wife won’t hear of it, so it’s just a fantasy.
I get the FI part but not the RE part of FIRE.
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

muffins14 wrote: Fri May 10, 2024 2:54 pm Obviously yes rental price increasing is hard, but you can also "just move" to a cheaper place. Often a person can move to a place that is cheaper than your their place if they find discounts in the market. In our early years renting we moved every 12-18 months because the existing rent went up more than we wanted, and we got a cheaper, newer place due to incentives to move in during in-progress renovation work in larger buildings.
Moving is a costly and time consuming endeavor, might be okay for a young single person or childless couple with few possessions, but its not practical for most people in retirement. Landlords know this and factor it into your increases, the less able you are to move they more they can jack up the rent.
And that said, just moving can't always save you much. To offset the rent increases I saw I would have had to move 10 miles or more further from work, to a significantly worse neighborhood with significantly worse schools, to a smaller and more squalid apartment. There was no magic comparable property for the same price to move to, they had raised their rents too. My only option became to get a roommate and split costs.
muffins14 wrote: Fri May 10, 2024 2:54 pm If your owned home needs 100k of roof repairs, you can't just move to a cheaper place, you have to fix it, or sell at a lower value than planned.
If your home needs 100k of roof repairs you either had a tornado take the entire thing off (which insurance would cover) or you live in a McMansion.
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Re: Paying cash for a house vs rent in retirement

Post by rogue_economist »

muffins14 wrote: Fri May 10, 2024 3:06 pm You seem to be quite combative here.

1) Yes, a SFH is a typical asset. THere are like 80 million SFH in America. A typical family owns most of them.

2) Your house insurnace doesn't protect your equity against market forces. Your house gets old and less desirable. Your neighborhood gets worn down and less desirable. The economy tanks like 2008 and your house value plummets. There is not FDIC insurance for your home's market value.

If I am a renter, I have $0 home equity. The market tanks and now I can sign a lease elsewhere for cheaper. I still have $0 home equity and a pile of investments in the bank.
If I am a home owner, I have $1M equity and then next year it could be $700k but I am sitting on an $800k mortgage. Less investments in the bank because I made a downpayment on my home.

Which person is in the riskier financial situation *at that point in time*?
If I seem combative its because at one time I made the mistake of drinking the Boglehead cool aid on renting vs. buying and it did not work out well at all. Those reading our posts and looking for advice should get both sides of the issue. I think it was Patton that said “If everyone is thinking alike, then someone isn't thinking.”

1) Common and typical are not the same thing. SFH are a unique type of asset, even if they are also widespread.

2) You don't need protection from "market forces", you need protection from actual damages occurring to the home. The price of housing goes up over the medium to long term quite consistently. If you are living in the home to have a place to live you don't care about 2008, in fact it is a plus since taxable value will be lower. Stocks went down in 2008 and have no FDIC insurance either, so no one should own stocks right? Your investments could crash and be worth far less than you bought them for, but the difference is you can't live in a stock portfolio.
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Re: Paying cash for a house vs rent in retirement

Post by THY4373 »

adamthesmythe wrote: Fri May 10, 2024 2:33 pm
unwitting_gulag wrote: Fri May 10, 2024 1:31 pm Are the OP's numbers correct? This is where more research is needed. As others have noted, it seems that today, most markets don't follow the OP's numbers. Instead, the cost of rent is considerably lower, than that of a comparable purchase. Buying then becomes a bet on long term capital appreciation.
A favorable buy/ rent ratio is most likely in places that are neither good places for employment or desirable places to retire. I think small-town Texas is neither of these.
Though it isn't clear, the impression I got is OP is not currently located in rural Texas. That is he/she is currently renting in some other market and considering moving to rural Texas in order to own.
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Re: Paying cash for a house vs rent in retirement

Post by unwitting_gulag »

Hebell wrote: Fri May 10, 2024 3:00 pm Houses can indeed have unforeseen expensive repairs. And no, rogue_economist, it's quite possible to have a home with no consistent price appreciation at all. Lived both scenarios, different houses I've owned, different states, different decades. Definitely more price security with renting.
This is exactly why the buy vs. rent dilemma is so situational and so individually dependent. On this forum, we focus extensively and almost exclusively, on whether the prospective buyer can "afford" the house. Such consideration matters, but why dwell on it? Stretching to buy a too-expensive house can nevertheless work out. Economically buying a house for cash, that one can readily afford, may nevertheless turn into an unmitigated disaster, between repair costs, taxes, negative long-term appreciation and the myriad inconveniences of ownership. It is so case-dependent! Instead of blanket questions about "can I afford to buy a house", one should be asking - admittedly not in a public forum! - "should I buy this particular house".
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Re: Paying cash for a house vs rent in retirement

Post by momopi »

AlaskaTeach wrote: Fri May 10, 2024 12:47 am I keep having this fantasy of someday in retirement paying cash for a house, as opposed to renting my entire retired life. Not interested in any mortgage, but I am an extremist. I like the idea of finding a sub $150k house in rural Texas, and paying cash for it. These exist now, don't know about future cost.
There are many smaller cities around the country where you can buy a house for $150,000-$200,000. Waterloo Iowa, Peoria Illinois, Florence South Carolina, Fayetteville North Carolina, Mobile Alabama, Fond du Lac Wisconsin, Ocala Florida, etc. You don't have to settle for living in remote/rural Texas where accessibility to retail and hospital may be an issue.

Buying the property is just the start. You'll probably need to spend some money to refurbish the home. With aging in mind, enlarged rooms/corridors, grab bars in bathroom, walk-in showers, bath/kitchen remodels, etc.
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Re: Paying cash for a house vs rent in retirement

Post by cosmos »

THY4373 wrote: Fri May 10, 2024 3:52 pm
adamthesmythe wrote: Fri May 10, 2024 2:33 pm
unwitting_gulag wrote: Fri May 10, 2024 1:31 pm Are the OP's numbers correct? This is where more research is needed. As others have noted, it seems that today, most markets don't follow the OP's numbers. Instead, the cost of rent is considerably lower, than that of a comparable purchase. Buying then becomes a bet on long term capital appreciation.
A favorable buy/ rent ratio is most likely in places that are neither good places for employment or desirable places to retire. I think small-town Texas is neither of these.
Though it isn't clear, the impression I got is OP is not currently located in rural Texas. That is he/she is currently renting in some other market and considering moving to rural Texas in order to own.
This is precisely my plan for the future as well. Live in VHCOL urban area for work/career now but fully intend to retire to a more rural LCOL area since there is no longer anything tying me down when that happens. We shall see.
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Re: Paying cash for a house vs rent in retirement

Post by Watty »

AlaskaTeach wrote: Fri May 10, 2024 12:47 am I keep having this fantasy of someday in retirement paying cash for a house, as opposed to renting my entire retired life. Not interested in any mortgage, but I am an extremist. I like the idea of finding a sub $150k house in rural Texas, and paying cash for it. These exist now, don't know about future cost.

I am 59 now. Projecting I am 68 years old, net worth of about 700k, and annual retirement pension is $45k, SS 8k. Assume I die at age 83 and receive an inheritance of $300k at age 72. Predict cost at age 68 to be $200k. What am I looking at in additional costs? 2-3% total added on to the price for closing costs?

Guess 206k, all in. Rent for 15 years- assume 20k per year = 300k. 206k looking pretty good, plus heirs can sell house when I am gone.

Assume annual maintenance of house $2000 and insurance of $1000. Owned a home years ago and spent nowhere close to that number, much lower. Property taxes have been "reformed" in Texas, so assume $2k per year.

So math is 206k plus 30k maintenance plus 15k insurance plus 30k property taxes = 281k. Compared to rent of 300k? With those numbers renting still comes out ahead, except for at death someone gets to sell the property and do pretty well.
I did not follow your numbers but one thing you are missing in the rent situation is income taxes.

For example if you need to withdraw money from an IRA every year to pay $20K in rent then you might need to withdraw something like $25K to pay $5k in income taxes so that you have $20K left after taxes to pay your rent.
AlaskaTeach wrote: Fri May 10, 2024 12:47 am ....plus heirs can sell house when I am gone.
My mom outlived my dad and she said that her paid off house was her long term care insurance policy. She made sure that my siblings and I had the paperwork we would need to sell the house if she went into LTC. Her house was in the midwest and not terribly expensive but in addition to her normal retirement budget the numbers worked.

It is more complicated for a couple if LTC is needed when they are both still alive but there are still ways to tap the home equity if it is needed.
AlaskaTeach wrote: Fri May 10, 2024 12:47 am I like the idea of finding a sub $150k house in rural Texas, and paying cash for it.
Remember the saying, "Be careful what you ask for."

I the housing markets I have seen the bottom of the housing market was pretty grim and you were likely to overpay for what you got. At the bottom of the housing market your neighbors will likely have a lot more drama going on in their lives too. In a housing market where $150K houses are available it would likely be best to try to get a house in the $200-$250K price range where you would get a much better house.
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Re: Paying cash for a house vs rent in retirement

Post by runswithscissors »

adamthesmythe wrote: Fri May 10, 2024 2:33 pm
unwitting_gulag wrote: Fri May 10, 2024 1:31 pm Are the OP's numbers correct? This is where more research is needed. As others have noted, it seems that today, most markets don't follow the OP's numbers. Instead, the cost of rent is considerably lower, than that of a comparable purchase. Buying then becomes a bet on long term capital appreciation.
A favorable buy/ rent ratio is most likely in places that are neither good places for employment or desirable places to retire. I think small-town Texas is neither of these.

Yes, the homes with favorable buy/rent ratios are the least desirable to own for a myriad of reasons. The irony is people actually use that calculation as a way to gauge a "good" buy. In reality they advocate to buy homes when they should be, more often than not, rented.
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Re: Paying cash for a house vs rent in retirement

Post by Sprucebark »

rogue_economist wrote: Fri May 10, 2024 10:06 am
Sprucebark wrote: Fri May 10, 2024 9:56 am I had a coworker who was nearing retirement and bought a second house for his eventual golden years- except it was $800k. And he sold his s&p 500 stock so he could pay cash to “save interest”. Interest rates were around 6 or 7% then I believe.

Since then the s&p has gone up about 40%, so the coworker lost out on $320k in paper gains. But he doesn’t have to pay any interest;).

Oh and within a year he had some major hvac failures and had some huge trees that were growing against the roof that needed cut down- about $30k in unexpected expenses. It’s incredible what tree companies charge when they have to use a crane and do delicate work above a house.
Yes, but the S&P could go down 40% tomorrow and wipe the whole thing out. Hindsight is worthless. The interest saved is a guarantee, not a speculation. To take the loan and keep the stock is the equivalent of leveraging a stock portfolio, hardly a risk reduction strategy for someone entering into retirement.

He bought a house with trees growing against the roof, that was a potential issue that was hardly unforeseeable. Still $30k is far too much for that kind of work.
Yes, I suppose that is true.

The hvac replacement was $10k (went to an high efficiency system) and the tree work was $20k.
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Re: Paying cash for a house vs rent in retirement

Post by LilyFleur »

I had relatives who owned a mobile home on rural land in the midwest (because they had a couple of acres surrounded by farmland, they didn't have neighbor troubles). They had humble resources but enjoyed a decent retirement. They did have children in the area who could take them to doctor's appointments, etc., and there was a nursing home in town that one of them ended up in. I think they had a storm cellar just a few steps from their mobile home.
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Re: Paying cash for a house vs rent in retirement

Post by toomanysidehustles »

rogue_economist wrote: Fri May 10, 2024 11:00 am
bloom2708 wrote: Fri May 10, 2024 10:52 am An older $150k house will need a new roof and a new furnace/AC system sometime soon. A paid off mortgage is just part of the deal.
Put on a steel roof and OP will never have to worry about it in their lifetime. HVAC is speculative, I've seen systems from the turn of the last century still going strong.
bloom2708 wrote: Fri May 10, 2024 10:52 am Property taxes just go up and up.
Yes, but a property tax is a far smaller cost than the rent. If they really shoot up its because the area became super valuable, in which case you can always sell and go to LCOL.
bloom2708 wrote: Fri May 10, 2024 10:52 am Storms and floods and and and.
Don't buy a home that can/will flood. Good roofing and siding material should minimize any storm issues.
Yup. If I was buying a 150k house in rural Texas (paying in cash) I would buy a metal roof/metal siding home far away from a flood zone and roll the dice not even getting insurance. But that's just me. Gravel 150' all the way around it too so it is forest/grass fire proof too (just for good measure) :happy
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Re: Paying cash for a house vs rent in retirement

Post by Raraculus »

I myself am pondering this question as well. I'm leaning towards purchasing a new home in retirement. This way I won't get hit for unexpected costs, i.e., HVAC, roof, trees, etc. for at least a decade into retirement. I would live in a HOA community - I'll just pay the HOA fees for lawn maintenance and amenities as I would not be living in a shared place, i.e., condo/townhouse/apartment. I would live in a state that caps property taxes for homesteads. Lastly, I would live in areas that are not as impacted by climate change to keep my insurance premiums low.

Owning a home is a tremendous hedge against inflation if one lives there long enough. I admit that I cannot even afford to live in my home if I were to buy it today.

I'm open to renting a place, but it would mean a minimalist lifestyle as I could be forced to move elsewhere. That is my #1 bugaboo when it comes to renting in retirement.
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Re: Paying cash for a house vs rent in retirement

Post by THY4373 »

Raraculus wrote: Sat May 11, 2024 7:39 pm I myself am pondering this question as well. I'm leaning towards purchasing a new home in retirement. This way I won't get hit for unexpected costs, i.e., HVAC, roof, trees, etc. for at least a decade into retirement. I would live in a HOA community - I'll just pay the HOA fees for lawn maintenance and amenities as I would not be living in a shared place, i.e., condo/townhouse/apartment. I would live in a state that caps property taxes for homesteads. Lastly, I would live in areas that are not as impacted by climate change to keep my insurance premiums low.
I did a lot of this after renting for seven years in late mid-life though in the end I went with a older house but I am spending my last couple of years working fixing up everything so I won't have much to do when I retire hopefully. My house is a single family home on a small lot. The HOA takes care of all the yard work, snow clearing the one time every few years it is needed, and trash collection. I went with a thirty year old home due to the fact that new houses for the last few years (I bought in late 2022) are going for huge premiums over existing houses often 40%+ though existing homes are harder to find and tend to sell quick (though I got mine during a brief lull as interest rates first spiked post Covid). I was worried with the labor and supply shortages (the latter is less of an issue now) there would have been shortcuts taken in newer homes (similar to the late mid-2000s housing boom homes). It was really hard to find exactly what I wanted new. Most of the smaller homes that were new were townhomes and the SFH homes were basically more than I needed as solo person being north of 3-3.5k square footage (I bought a 2.2-2.4k square foot house which is perfect for me). In my area, things were generally built with more attention to detail back in the 1980s and 1990s than today. And finally though it is more work on my part dealing with contractors, I am able to spec my upgrades exactly the way I want them and get better than builder grade. My new roof is a 50 year roof, my two HVACs are top of the line Mitsubishi units, etc.
Raraculus wrote: Sat May 11, 2024 7:39 pm Owning a home is a tremendous hedge against inflation if one lives there long enough. I admit that I cannot even afford to live in my home if I were to buy it today.
I agree with this, this was another reason I decided to stop renting (which I was doing by choice) to buy. My area is about 90-120 mins for a HCOLA city. My ex and I moved from that city about 20 years ago. This area has traditionally been a reasonable cost of living area with housing being generally affordable for most folks that live here. But during Covid and the rise of telework things started rising here much faster with an influx of folks from HCOLAs especially the one two hours away. And this hasn't slowed down as far as I can tell. I was convinced when I bought in late 2022 I was buying at the peak of the housing market but my zip code was up 23% last year (the second highest gain in my metro area). I realized if I didn't buy soon my choices would be lower or I'd have to work longer if I wanted to buy here. Buying has cost me more than continuing to rent but I don't regret it.
Raraculus wrote: Sat May 11, 2024 7:39 pm I'm open to renting a place, but it would mean a minimalist lifestyle as I could be forced to move elsewhere. That is my #1 bugaboo when it comes to renting in retirement.
This is how I lived for about seven years and there is something to be said for it. I rented a SFH but kept my possessions relatively light post-divorce. So if I had to move I would have less to move. I was never forced to move and my rent was actually kept well below rent inflation (and actual inflation) but as I approached retirement I didn't want to have to deal with moving and/or dealing with finding a place in a red hot rental market. While I miss the mind-freeing feature of renting which is I don't worry about maintenance, I am happy I bought a place before I retire. And that actually raises another issue about renting in retirement which was qualifying for a lease if you don't have steady earned income.
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Re: Paying cash for a house vs rent in retirement

Post by AlaskaTeach »

THY4373 wrote: Fri May 10, 2024 3:52 pm
adamthesmythe wrote: Fri May 10, 2024 2:33 pm
unwitting_gulag wrote: Fri May 10, 2024 1:31 pm Are the OP's numbers correct? This is where more research is needed. As others have noted, it seems that today, most markets don't follow the OP's numbers. Instead, the cost of rent is considerably lower, than that of a comparable purchase. Buying then becomes a bet on long term capital appreciation.
A favorable buy/ rent ratio is most likely in places that are neither good places for employment or desirable places to retire. I think small-town Texas is neither of these.
Though it isn't clear, the impression I got is OP is not currently located in rural Texas. That is he/she is currently renting in some other market and considering moving to rural Texas in order to own.
Correct, I am about to make the big move from rural Alaska to a huge city in Texas. DW and I plan to rent the apartment for at least 2 more years and by then I will contemplate retiring at that time. In October 2026 she will be 64, and I am two years younger. I actually compared a forecasted rent in a big city vs. owning a home in a medium city. I agree it is all about appreciation. Our current rent in Texas is actually much more reasonable than what I forecasted, low enough that I have been paying the rent for the last year while living in Alaska. The DW is the queen of Amazon, currently in rehab and what makes it really special is that she had to deal with a couple of porch pirates in Texas. Very sad indeed. :happy

The current plan is for pensions and SS to pay for rent, required food, utilities, and transportation. Only reason to pull from retirement accounts should be big ticket items such as a new car, roof, big trip, etc.

Wrt property taxes and total tax burden, I have actually found an oasis, and the only problem is that the DW will not want to move to Arkansas. Texarkana AR has an exemption from state income taxes, theoretically so the Arkansas side can compete with the Texas side. I see property tax amounts of under $1000 all of the time.
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