better to rent or buy??

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aerospec172
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better to rent or buy??

Post by aerospec172 » Fri Dec 18, 2009 3:32 pm

just curious what the thought is on renting vs buying a house.
im in the military and im single and right now i prefer to rent but
was just curious whether buying a house would be better down the
road as far as an investment opportunity. right now I already max out
my Roth and invest about 25% of my gross income to TSP.
i just ask because I know many of my peers, when I ask them about
their investments they answer that their morgage is their investment

tonythered
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Post by tonythered » Fri Dec 18, 2009 3:39 pm

Hi,
This may help in your decision-making:
http://www.bogleheads.org/wiki/Owning_vs_Renting

My personal opinion is that owning a home is generally a financial black hole, after you consider all of the maintenance/taxes/decorations/improvements that come along with it. Home values generally just track inflation.

I think most of the benefit of home-ownership is psychological.

pkh01l
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Post by pkh01l » Fri Dec 18, 2009 3:40 pm

i would rent as long as your single. My "investment" (condo) is worth $50,000 less than I paid for it. Renting is worth the freedom and peace of mind. 1/4 of all mortgages are underwater right now according one estimate I read, so not that great of an investment.

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Guest422
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Post by Guest422 » Fri Dec 18, 2009 4:05 pm

Buy a duplex or triplex and cover the mortgage with the rent from the other units.

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Post by DaveH » Fri Dec 18, 2009 4:09 pm

kevintmckay wrote:Buy a duplex or triplex and cover the mortgage with the rent from the other units.
Ahh if it were only that simple :)
The fewer our wants, the nearer we resemble the gods. — Socrates

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Post by Rodc » Fri Dec 18, 2009 4:18 pm

Should you marry or just date? :)

Personal choice and sometimes one changes their mind from one to the other.

Either can work depending on what you want.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Post by Petrocelli » Fri Dec 18, 2009 4:31 pm

Based upon past threads, the answers can be summarized as follows:

Posters who own: own.

Posters who rent: rent.

I own, so I think you should buy. However, buy the cheapest house in the best area you can afford.
Petrocelli (not the real Rico, but just a fan)

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Post by fishnskiguy » Fri Dec 18, 2009 4:31 pm

I too was in the military, and bought a house when I was single. Although I made a little when I sold it, the house demanded a huge amount of my precious free time. I swore I would never do that again, and didn't, until after I got married. Then it was not so bad, as my wife helped out a lot.

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Re: better to rent or buy??

Post by DaveH » Fri Dec 18, 2009 4:50 pm

aerospec172 wrote:just curious what the thought is on renting vs buying a house.
im in the military and im single and right now i prefer to rent but
was just curious whether buying a house would be better down the
road as far as an investment opportunity. right now I already max out
my Roth and invest about 25% of my gross income to TSP.
i just ask because I know many of my peers, when I ask them about
their investments they answer that their morgage is their investment
So many people say that. However, they fail to really do the math to calculate a REAL return on that investment. I mean, taking into consideration the taxes, maintenance, savings on rent, utils, etc. there are many, many,many people who didn't do as well on their homes as they would have if they'd rented and left the rest in CD's.

Then again, some people made a killing. Timing is key. Just don't think that 'a mortgage' is an investment, don't think that a duplex/triplex is more likely to make you money, etc.

The only way to find the answer is by looking at it in one of two ways:

1) Emotional/lifestyle: I own a property in S. Thailand that I bought years ago. I love it there. It makes me happy to be there and to be a part of it. I expected to lost my shirt on the investment, but I didn't care! Somehow, it's skyrocketed in value but I wouldn't have cared if it tanked - I love it so it's a GREAT investment in my own happiness and satisfaction.

2) Financially: this one is easy, but not simple. You have to make some assumptions about inflation, the housing market, maintenance, and everything else that goes into the calculation. You will decide how much you would be spending on rent and most importantly, how long you plan to live in the house. Once you have all of that, you dial it into a spreadsheet and you can actually get a percent return on your overall investment - easy to compare to other investments.

If you are looking at a place to live and not jsut an investment, you have to consider both. The house I'm in now is perfect for us, and as long as I'm not losing tons of cash I'm happy. But, for an investment property I'd like to see at least 12% since it's quite a bit of work and risk.
The fewer our wants, the nearer we resemble the gods. — Socrates

aerospec172
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Post by aerospec172 » Fri Dec 18, 2009 5:08 pm

thanks for all the replies! i think for now i'll probably just continue to rent in my current situation.

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Post by Opponent Process » Fri Dec 18, 2009 5:21 pm

rent and invest the difference. from doing this, at some point in life you will have a sizable portfolio & cash reserves such that you can then buy a house/land on better terms, so to speak, to lock in the benefits of long-term ownership.

all that many young people really own is a mortgage, and it actually owns them.

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Post by TRC » Fri Dec 18, 2009 9:04 pm

If you plan to stay in the same area for a long time (greater than 5 years), I think buying is the better option. Especially if you get a housing allowance from the military. A lot of this depends on your local real estate market though. For the most part, real estate values are down and interest rates have never been lower. Inventory is also high, so chances are you can find a really good deal on a property. Renting is always an option too....if you don't mind building wealth for someone else and letting them take the tax deduction :wink:

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Post by RobG » Fri Dec 18, 2009 9:21 pm

A house isn't a very good investment but it can be better than renting. Note that people here are extremely biased against owning (as is that wiki article). Big cities have inflated real estate prices and large swings, so maybe that is part of it.

It really comes down to rent/price ratio and how much you have for a down payment. Run some numbers in that calculator referenced by the wiki. Choose a reasonable return for the money you would invest assuming you rented. Right now a reasonable return is 2-3% if you have a about a 5 year horizon and consider that taxes you'll pay. Don't kid yourself on how much you'll really make investing that down payment either.

Also important is how well you can absorb a loss. If house prices go down and you have to sell, it also means the house you buy will be discounted. If you own the home completely it is a wash, but this is little comfort if you were highly leveraged and all your money was vaporized.

rg

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Post by mda42 » Fri Dec 18, 2009 10:23 pm

Hard (impossible?) to tell in advance whether or not a house will be a good investment. There is definitely some risk involved.

Renting gives you a lot more financial flexibility, and people on this board tend to like that. On the other hand, there are some real benefits to owning. You can change things or add things to the house. Also, in some states like California your property taxes are mostly based on your purchase price, so you lock in the annual tax when you buy. In those states, people that bought their house a long time ago often pay a fraction of what their next door neighbors pays.

There are other tax benefits, like the fact that you can to a large extent pocket capital gains on a house tax free. Maybe taxes on stocks are low right now, but I can easily imagine that will change. Huge federal deficit and debt...have to pay the bill somehow. Large stock portfolios of the will be an obvious target. In contrast, it would be politically problematic to go after more housing-related taxes, so those tax breaks seem more certain in the future.

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Post by zed » Sat Dec 19, 2009 9:08 am

IMHO it's a financial decision. There's a house on every street corner.

You might find this helpful: -> http://www.nytimes.com/2007/04/10/busin ... PW8QIJCuOg

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Post by kd2008 » Sat Dec 19, 2009 9:46 am

There is no definitive answer for buy vs rent. There are can be a financial answer as to whether it is cheaper to buy or rent. But there are other factors too. It foremost depends upon your life situation, geographical area and security of income source. It also depends on whether you are happy in life with where you are. If you like the area or if grew up there and have family then you might see yourselves putting down roots there etc.

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Post by Bob's not my name » Sat Dec 19, 2009 10:04 am

Attributes of a good investment:
1. Liquidity
2. Unleveraged
3. Low maintenance
4. Low annual expenses
5. Low transaction expenses
6. Diversification
7. Short bear markets

Which of these does a house offer? None. A house is not an investment, it's a lifestyle. It can be a very good lifestyle, but it's still not an investment.

Secondly, being a landlord is not an investment, it's a business.

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Post by Petrocelli » Sat Dec 19, 2009 10:06 am

RobG wrote:Note that people here are extremely biased against owning (as is that wiki article).
Actually, that is the first time I looked at the wiki. My goodness! After reading that article, it appears there are so many reasons favoring renting I should sell my house immediately.

The problem with any wiki is that it is only as good as the person who wrote it. Apparently, the person who wrote that loves renting.
Petrocelli (not the real Rico, but just a fan)

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Post by TheEternalVortex » Sat Dec 19, 2009 10:22 am

In general this depends on your specific situation and housing market. Look around and compare how much it would cost to rent vs. buy, and then use the NY Times online calculator to see which makes more sense based on how long you plan to live there.

In my situation I found that buying was only better than renting if I was going to stay in one place for 10 years, which I didn't plan on doing. But the point is that it varies tremendously.
The problem with any wiki is that it is only as good as the person who wrote it. Apparently, the person who wrote that loves renting.
That's a problem with any written text. The solution of the wiki is that now you can fix it!

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Post by LadyGeek » Sat Dec 19, 2009 10:43 am

Petrocelli wrote:
RobG wrote:Note that people here are extremely biased against owning (as is that wiki article).
Actually, that is the first time I looked at the wiki. My goodness! After reading that article, it appears there are so many reasons favoring renting I should sell my house immediately.

The problem with any wiki is that it is only as good as the person who wrote it. Apparently, the person who wrote that loves renting.
Hence the big "This is a controversial topic" warning at the top of the page.

This is a flag that it needs someone to help make it unbiased. If anyone has some suggestions, I'd be happy to cut them in. (As stated at the bottom of the page, if anyone was inclined to become a wiki editor...).

Please see Owning vs Renting on the Bogleheads Wiki.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Post by CaptMidnight » Sat Dec 19, 2009 11:12 am

Bob's not my name wrote:Attributes of a good investment:
1. Liquidity
2. Unleveraged
3. Low maintenance
4. Low annual expenses
5. Low transaction expenses
6. Diversification
7. Short bear markets

Which of these does a house offer? None. A house is not an investment, it's a lifestyle. It can be a very good lifestyle, but it's still not an investment.

Secondly, being a landlord is not an investment, it's a business.
A home is only not an investment if you can afford to be indifferent to the financial outcome.
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Post by kenbrumy » Sat Dec 19, 2009 11:27 am

I had been an "owner" since 1978. I've made money and lost money on houses during that time period just based on the gross purchase price vs. the net selling recovery check. Currently, DW and I are renting. We won't be here for very long. I don't know if our next place will be a rental or if we'll buy it.

My simplified advice is rent if you don't know you'll be in the property for 5+ years. The only short term advantage is psychological but, hey, that's all in your head.

Don't "stretch" to buy the biggest house you can afford. That guarantees you'll have unnecessary financial stress. Owning anything reduces your flexibility and creates a large risk that can never be fully evaluated. For most people, a true financial analysis would say you should always rent unless you buy into one of those few areas that truly appreciate far more than inflation over an extended period of time. There really aren't very many of those.

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Post by VictoriaF » Sat Dec 19, 2009 11:57 am

Petrocelli wrote:
RobG wrote:Note that people here are extremely biased against owning (as is that wiki article).
Actually, that is the first time I looked at the wiki. My goodness! After reading that article, it appears there are so many reasons favoring renting I should sell my house immediately.
The advice, of course, is different for those who are considering a rent/buy decision and those who are already owning. With liquid investments, you can look at any moment in time and ask yourself "If I would not buy it now, why am I not selling it?" -- whatever "it" may be, for as long as "it" is liquid. Housing is decidedly illiquid.
Petrocelli wrote:The problem with any wiki is that it is only as good as the person who wrote it. Apparently, the person who wrote that loves renting.
In general, you are right about people's advice reflecting their biases. However, this Forum and its Wiki are an open environment, open to everybody and subject to a community review. It is difficult to post nonsense without an immediate wave of outrage. Yes, this decision is controversial, but the Wiki approaches it as logically and thoroughly as is humanly possible.

Consider that you may be overestimating the value of home ownership and are ignoring its possible pitfalls. If your house has brought you significant financial rewards, luck must have played and important role in this (along with your charm, business acumen, etc.).

If your house is an integral part of your lifestyle, that's fair, but that is not a reason to buy for others whose lifestyles are different.

Victoria
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Post by Triple digit golfer » Sat Dec 19, 2009 12:06 pm

Could someone answer me what I think is a very basic question?

How is it possibly ever better to rent than buy? Logically, people rent out their homes to make money. How could it be that the rent payment is lower than the mortgage, insurance, taxes, and maintenance on the home combined?

I could see it for apartment buildings with 4-6 or more units, but for a house? How is it possible? Or do we assume that the mortgage is paid in say 15 years, but the building is rented out for many more than that, so in essence, the landlord is receiving more rent payments than he is paying mortgage payments?

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Re: better to rent or buy??

Post by VictoriaF » Sat Dec 19, 2009 12:10 pm

aerospec172 wrote:just curious what the thought is on renting vs buying a house.

i'm in the military and im single and right now i prefer to rent but was just curious whether buying a house would be better down the road as far as an investment opportunity.
If you are an active duty military officer you are probably changing your duty station every three years. Under these circumstances, buying property is very risky.

You prefer to rent. Follow your preference!
aerospec172 wrote:right now I already max out my Roth and invest about 25% of my gross income to TSP.

i just ask because I know many of my peers, when I ask them about their investments they answer that their mortgage is their investment
You are doing very well with saving and investing and are very likely to build your assets faster this way than hoping that your house would appreciate.

Your peers may have bought housing in the NCR at low prices and watched the local market booming. That opportunity is likely gone. The Washington area real estate is holding relatively well due to better job market than elsewhere in the country, but nobody expects real estate speculation to revive any time soon (not at the scale of the middle 2000's.

Also, people tend to overestimate the financial benefits of home ownership by looking at the price they paid, e.g., 20 years ago, and current market level. They don't consider how much they would have made in liquid investments (equities and fixed income) over the same time period, without any hassle of home ownership.

My suggestion is that you continue renting, at least, until you decide to marry or you retire from the service and know where you want to settle.

In the mean time, read this Bogleheads site and its Wiki to get moral support.

Thank you for your service,

Victoria
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mda42
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Post by mda42 » Sat Dec 19, 2009 12:19 pm

Bob's not my name wrote:Attributes of a good investment:
1. Liquidity
2. Unleveraged
3. Low maintenance
4. Low annual expenses
5. Low transaction expenses
6. Diversification
7. Short bear markets

Which of these does a house offer? None. A house is not an investment, it's a lifestyle. It can be a very good lifestyle, but it's still not an investment.

Secondly, being a landlord is not an investment, it's a business.
The most important thing for a good investment is that it makes a lot of money...which, strangely, does not appear on this list. Also, you can get 1,2,3,4,5, and 7 by putting your money in a checking account. A lot of (most?) great fortunes have been made by violating all or most of the points on the list above. Of course, you can get burned.

Not suggesting that the original poster buy, but just wanted to point out that this board is really biased toward the very low-risk approaches to building wealth. Nothing wrong with this point of view; it usually works OK. But even Bogle got rich by doing something new and starting a company :)

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Re: better to rent or buy??

Post by Triple digit golfer » Sat Dec 19, 2009 12:25 pm

VictoriaF wrote:Also, people tend to overestimate the financial benefits of home ownership by looking at the price they paid, e.g., 20 years ago, and current market level. They don't consider how much they would have made in liquid investments (equities and fixed income) over the same time period, without any hassle of home ownership.
Victoria,

Could you clarify? Where would the money come from for the investments you talk about? Lots of people put 3% or even 0% down, so in many cases it's not down payment money they're saving. So if that's not the case, where is the extra money that you're referring to come from? In many places renting costs as much as a mortgage payment would.

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Post by VictoriaF » Sat Dec 19, 2009 12:42 pm

Triple digit golfer wrote:Could someone answer me what I think is a very basic question?

How is it possibly ever better to rent than buy? Logically, people rent out their homes to make money. How could it be that the rent payment is lower than the mortgage, insurance, taxes, and maintenance on the home combined?

I could see it for apartment buildings with 4-6 or more units, but for a house? How is it possible? Or do we assume that the mortgage is paid in say 15 years, but the building is rented out for many more than that, so in essence, the landlord is receiving more rent payments than he is paying mortgage payments?
Your question seems logical, but there are some good reasons for the inconsistency.

1. Many renters live in multi-unit buildings rather than single-family homes. The same is true for owners of condominiums and cooperatives. Living in a single-family vs. multi-unit building largely depends on a location. For example, it is extremely expensive to own a single-family home in a major urban center, in the city center (New York City, San Francisco, Washington, DC, Chicago, Boston).

If one prefers to live in the center of a metropolis, a rental unit is frequently a better financial choice than a condominium or a cooperative.

If one lives in a small city or a suburban environment, the choice is mainly between owning a single-family house and renting in a multi-dwelling building.

2. People usually rent housing with fewer features than what they would buy. Rental is a pure consumption choice and the decision is optimized as such. For example, I optimize my apartment choices in the following order:
(1) length of commute
(2) proximity to the nice parts of D.C.
(3) price.
I don't care about the age, size and quality of my apartment.

Home ownership is viewed as, at least, part investment, and people consider variables such as the age of the unit, school district, etc. If I decided to buy, it would be a much better (and a much more expensive) place than the one where I currently live.

3. Rental market is relatively efficient in that it cannot be (much) higher than what people can pay out of their income. For this reason, rental prices generally follow the CPI.

Housing ownership market is not efficient and is subject to bubbles that are not correlated with incomes, as we witnessed in the mid-2000's.

In 2005, it was cheaper to rent, because many people rushed to buy. In 2009, it is cheaper to rent, because many home owners cannot sell without a loss (or own multiple properties), and are offering their units for rent below the cost of owning and operating them.

Having said that, there is no single clear choice. If you live outside a metropolis, or you have school-aged children, or you just need the psychological comfort of owning your home and the stability of choosing window curtains -- ownership may be the right way to go.

If, on the other hand, you are a single, active-duty military officer, who likes to rent -- renting is clearly a very good choice.

Victoria
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Re: better to rent or buy??

Post by VictoriaF » Sat Dec 19, 2009 1:00 pm

Triple digit golfer wrote:
VictoriaF wrote:Also, people tend to overestimate the financial benefits of home ownership by looking at the price they paid, e.g., 20 years ago, and current market level. They don't consider how much they would have made in liquid investments (equities and fixed income) over the same time period, without any hassle of home ownership.
Victoria,

Could you clarify? Where would the money come from for the investments you talk about? Lots of people put 3% or even 0% down, so in many cases it's not down payment money they're saving. So if that's not the case, where is the extra money that you're referring to come from? In many places renting costs as much as a mortgage payment would.
Triple digit golfer,

My comment was unrelated to what people put down on their house or how much they can afford to spend.

I was referring to Robert Shiller's data that over many years, and across the U.S., the housing prices on average rise with inflation. Historically, this was about 3% annually.

Equities, on the other hand, appreciate based on three components, i.e., (1) inflation, (2) earnings per share, and (3) GDP. Historically, this was about 9% annually.

The reasons people do not appreciate this difference are that:
1. housing provides forced savings for those who need to be forced to save; saving to invest in equities requires self-discipline that many do not possess.
2. people do not compare equivalent investment choices, e.g., they know that over 30 years their house price has doubled, but they do not consider a potential growth of their equivalent investment in equities over the same period of time.

Victoria
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Post by RobG » Sat Dec 19, 2009 1:12 pm

Petrocelli wrote:
RobG wrote:Note that people here are extremely biased against owning (as is that wiki article).
Actually, that is the first time I looked at the wiki. My goodness! After reading that article, it appears there are so many reasons favoring renting I should sell my house immediately.
Consider renting two places. Imagine the money you'll save! :lol:

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Post by RobG » Sat Dec 19, 2009 1:25 pm

Triple digit golfer wrote:Could someone answer me what I think is a very basic question?

How is it possibly ever better to rent than buy? Logically, people rent out their homes to make money. How could it be that the rent payment is lower than the mortgage, insurance, taxes, and maintenance on the home combined?
In speculative markets an owner might actually be losing money on rent, but hoping to make it with housing appreciation. In this kind of environment it might be better to rent... back to that price to rent ratio that I mentioned earlier.

Over the long term the landlord has to make money so ownership has to be cheaper than renting. For the short term things can be different There are also transaction fees, generally about 6% + any loan fees. It takes a while for appreciation to cover those, and in the short term you can't count on appreciation. You could also have unexpected costs, for example the roof could start leaking and there goes $10k. The landlord has a long time to recover this, but you may not.
Last edited by RobG on Sat Dec 19, 2009 1:33 pm, edited 1 time in total.

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Post by RobG » Sat Dec 19, 2009 1:32 pm

Hence the big "This is a controversial topic" warning at the top of the page.

This is a flag that it needs someone to help make it unbiased. If anyone has some suggestions, I'd be happy to cut them in. (As stated at the bottom of the page, if anyone was inclined to become a wiki editor...).

Please see Owning vs Renting on the Bogleheads Wiki.
Yeah, they put that up after I whined earlier ;) I think it should say something like "this content is considered biased by some and in need of cleanup" (like the big wiki) but I'm glad it was at least noted. I'm now an editor and should help instead of complain, but good writing is hard work and it will probably be overwritten by the people with more time on their hands than me.

Besides, I'm taking the kids skiing in a few minutes (we bought the skis instead of renting them)

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Post by SpecialK22 » Sat Dec 19, 2009 2:07 pm

Victoria wrote: people do not compare equivalent investment choices, e.g., they know that over 30 years their house price has doubled, but they do not consider a potential growth of their equivalent investment in equities over the same period of time.
The flipside is to consider how much money a person would have saved with a 30 year fixed mortgage as compared to 30 years of rent increases. With the exception of extremely expensive metropolitan areas, I believe that if someone knows they are going to be in the same property for 30 years it is certainly not a poor financial decision to buy. I think your underlying premise is that the same property can be rented for substantially cheaper than it is to buy the same property. This is obviously not always the case, and I think it reflects the bias you show towards your own area.

I mentioned in another post that the monthly cost of my condo is about $130 less than it would be to rent a similar condo in the development. This includes a fixed mortgage, taxes, condo fees and insurance. Since I did put 20% down, I do lose some opportunity cost and I also have a lower monthly payment than if I went VA with 0% down. Obviously, I have the added cost of taking care of repairs myself. Additionally, there are some things that I would like to do to make the condo a little nicer, so there is a little increased consumption as well with owning. However, I would think that over 30 years buying would be more financially efficient than owning in my situation. In all fairness though, I probably will be here for awhile but not likely 30 years.

As to the OP, how often do you anticipate being relocated? When I was active duty I was relocated frequently; however, other jobs are unique to only a few bases/posts and individuals could spend almost their entire career at one base/post. I knew one senior NCO who managed to spend almost his entire career at Ft Riley, KS. About every five years he would get orders to Korea for a year and his follow on request would be back to Ft Riley. I never owned while on active duty, but it seemed that the military and government had a lot of programs in place to help a relocating military member who owned property. Lots of things to consider, but I wouldn't feel pressured into owning a home. While on active duty I was content with either renting or having free room and board in the barracks. I think that you focusing on the TSP for retirement rather than owning property is the prudent choice.

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Post by Triple digit golfer » Sat Dec 19, 2009 2:23 pm

Victoria and RobG:

Thanks for your comments!

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Re: better to rent or buy??

Post by Petrocelli » Sat Dec 19, 2009 2:41 pm

VictoriaF wrote:
Also, people tend to overestimate the financial benefits of home ownership by looking at the price they paid, e.g., 20 years ago, and current market level. They don't consider how much they would have made in liquid investments (equities and fixed income) over the same time period, without any hassle of home ownership.
I don't think I am overestimating the benefits of owning a house. If you are buying in a major urban area, and you buy in a good area, I think there is a pretty good chance.

Here's my example: In 1987, I bought a $250,000 house with 10% down, and sold it two years later for $410,000. I put $155,000 down on a $625,000 house in 1989. I spent about $200,000 improving the house from a two bedroom 1.5 bath house to a 4 bedroom, 2.5 bath house. The house is now worth about $2,000,000. Moreover, in a few years, I'll have no rent payment.

If you invested $225,000 in 1987 you would have $996,440 assuming 7% return. (I don't know what the market has returned over the last 22 years.)
Last edited by Petrocelli on Sat Dec 19, 2009 5:27 pm, edited 1 time in total.
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Post by Opponent Process » Sat Dec 19, 2009 2:56 pm

Triple digit golfer wrote:How is it possibly ever better to rent than buy?
tons of survivorship bias in owning real estate, or any other commodity that returns nothing real on average. it's a (real) zero-sum game, and you're only hearing the success stories.
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Post by Triple digit golfer » Sat Dec 19, 2009 3:11 pm

Opponent Process wrote:
Triple digit golfer wrote:How is it possibly ever better to rent than buy?
tons of survivorship bias in owning real estate, or any other commodity that returns nothing real on average. it's a (real) zero-sum game, and you're only hearing the success stories.
I take it you're a renter?

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Post by mlebuf » Sat Dec 19, 2009 3:42 pm

The choice to rent or buy is better made as a lifestyle decision rather than as a financial one. With the real estate market being in the tank right now, many people are telling us to rent. That means it's probably a great time to buy from a financial standpoint. One thing is for sure. Anyone who buys now isn't buying at the peak of the real estate market.

I have been a homeowner for almost 35 years and enjoy it. Renting works fine if the renter will invest the difference between renting and owning in a diversified portfolio for retirement. Unfortunately, most renters spend what doesn't go toward the rent and end up with a very low net worth at retirement.

When my wife and I reach the stage in life where driving becomes a problem, I like the idea of selling our home, investing the home equity and renting. When one or both of us are gone, not owning a house is one less asset to be disposed of.

If you aren't able to make a commitment to own a home for at least 5 years, rent. The idea that everyone should be a homeowner is as nonsensical as the ideas that everyone should go to college, get married, have children, etc.
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Post by Bob's not my name » Sat Dec 19, 2009 4:09 pm

mda42 wrote:The most important thing for a good investment is that it makes a lot of money.


I agree. Housing hasn't done that lately.

By the way, I'm a happy homeowner.

I also own a business suit I bought from a saleswoman who said "a good suit is a great investment". She didn't fool me either.

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Post by Snowjob » Sat Dec 19, 2009 4:13 pm

After enormous housing booms like we just had wouldnt the supply of housing be so great that rental prices will fall below the cost of owning / maintaining the home just to attract a renter?

I think the reason there are a lot of people who are pro renting is because the recent economics of the housing market make renting far more efficient for a large portion of the population. This would likely correct over time as less houses are constructed and our population (US) is still growing. Perhaps a contrarian would say this is the best time to buy while prices are depresed. Of course he could be too early, which is the worst thing a leveraged value investor can be...

Back to the initial question. My cousin was in the military and moved around every 3-5 years. It didnt seem logical to buy under those circumstances -- even though he was married and had 2 kids. Personally I would just save and invest the difference untill your cirucmstances change.
Last edited by Snowjob on Sat Dec 19, 2009 4:45 pm, edited 1 time in total.

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Post by VictoriaF » Sat Dec 19, 2009 4:20 pm

Snowjob wrote:Back to the initial question. My cousin was in the military and moved around every 3-5 years. It didnt seem logical to rent under those circumstances -- even though he was married and had 2 kids. Personally I would just save and invest the difference untill your cirucmstances change.
Did you mean to say "It didnt seem logical to buy under those circumstances" ?

By the way, love your name, Snowjob. Your performance in the D.C. region for the past 18 hours was outstanding :)

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Last edited by VictoriaF on Sat Dec 19, 2009 4:28 pm, edited 1 time in total.
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Post by LadyGeek » Sat Dec 19, 2009 4:28 pm

RobG wrote:...I think it should say something like "this content is considered biased by some and in need of cleanup" (like the big wiki) but I'm glad it was at least noted. I'm now an editor and should help instead of complain, but good writing is hard work and it will probably be overwritten by the people with more time on their hands than me.

Besides, I'm taking the kids skiing in a few minutes (we bought the skis instead of renting them)
RobG,

I hope you had a great time. I'm on the east coast receiving about 18" - 24" of that white stuff, so I'm snowed in and have lots of time on my hands. Good writing is indeed hard work. However, I'm not sure how to update the article.

Your offer to fix it would be well appreciated. I pointed out the bias at the top of the article with a pointer back to this thread for more info.

If you need help on dealing with the wiki itself, just type in whatever you can and ask for help. The point is to get the content corrected (unbiased for either case). Any wiki editor is more than welcome to pitch in.

I'll also take specific suggestions in this thread if anyone wants to pitch in.

Please see Owning vs Renting on the Bogleheads Wiki.
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Post by Snowjob » Sat Dec 19, 2009 4:52 pm

VictoriaF wrote:
Snowjob wrote:Back to the initial question. My cousin was in the military and moved around every 3-5 years. It didnt seem logical to rent under those circumstances -- even though he was married and had 2 kids. Personally I would just save and invest the difference untill your cirucmstances change.
Did you mean to say "It didnt seem logical to buy under those circumstances" ?

By the way, love your name, Snowjob. Your performance in the D.C. region for the past 18 hours was outstanding :)

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Yes, good catch!

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Post by Harold » Sat Dec 19, 2009 5:00 pm

RobG wrote:It really comes down to rent/price ratio and how much you have for a down payment. Run some numbers in that calculator referenced by the wiki. Choose a reasonable return for the money you would invest assuming you rented. Right now a reasonable return is 2-3% if you have a about a 5 year horizon and consider that taxes you'll pay. Don't kid yourself on how much you'll really make investing that down payment either.
Rob, if you do update the wiki, I hope you clarify what you mean by this.
Actually, I hope you clarify it anyway. I work with numbers all the time, yet have no clear idea what you're trying to say. However, I'm sure you've got a reasonable point, which I'd like to understand.

To me, what makes more sense is cash flows (i.e. how much has to be paid when, and how much is received when). Most of the time ownership expenses (e.g. taxes, interest, upkeep, etc. etc.) are unmentioned by those supporting owning. Since owning can be better, it would be nice for at least one such argument to account for that.

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Post by fsrph » Sat Dec 19, 2009 5:35 pm

Triple digit golfer wrote:Could someone answer me what I think is a very basic question?

How is it possibly ever better to rent than buy? Logically, people rent out their homes to make money. How could it be that the rent payment is lower than the mortgage, insurance, taxes, and maintenance on the home combined?
I think people rent their houses to *try* and make money. In some cases that is not possible. Let me give an example. I'll use an area where I know most of the numbers. In approx. figures say you buy a 2br beachfront condo in Florida. Purchase price 500K, mortgage is 400K @ 5% for 30 years. So your yearly expenses are roughly 25K mortgage payments + 3K insurance + $4500 property tax + 8K yearly condo maint fees = about 41K. I've rented these units several times and the rent is $2200/month from May till November and $4500 from December thru April. So if they are fully rented they provide almost 38K in yearly income. On top of that the owner of the property pays all utilities/repairs/bills for the units.

There is no one answer as to if it is better to buy or rent. There always is a personal choice to do one or the other. But from what is financially better, we have to remember that real estate is a local and regional market. In some areas of the country it wil be better to rent, in others better to buy. This article gives a good view on renting vs buying nationwide .... http://www.time.com/time/magazine/artic ... 25,00.html

Francis

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Post by Petrocelli » Sat Dec 19, 2009 5:49 pm

While we're on the subject, it is cheaper to take the bus than own a car.
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Post by Opponent Process » Sat Dec 19, 2009 6:55 pm

girlfriends are cheaper than wives.

serial monogamy is cheaper than divorce, alimony, and child support.
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Post by VictoriaF » Sat Dec 19, 2009 6:57 pm

Petrocelli wrote:While we're on the subject, it is cheaper to take the bus than own a car.
Yes, it is. However:
If you rent you save a lot of time in comparison to owning.
If you take a bus you spend more time in commute in comparison to driving. In the circumstances where public transport takes about as much time as (or less than) driving - it is definitely better to use public transport.

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Post by Gekko » Sat Dec 19, 2009 6:59 pm

Petrocelli wrote:While we're on the subject, it is cheaper to take the bus than own a car.
apples vs. oranges.

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Post by DSInvestor » Sat Dec 19, 2009 7:01 pm

Petrocelli wrote:While we're on the subject, it is cheaper to take the bus than own a car.
I thought you leased your car.

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