Own a house versus renting; expenses

[obryanjf]

I am nearing Phase B of pre FIRE, which means move closer to the extended family and likely lesser salary.  My new location would be much closer but not right where I want to live eventually, so we would rent for some time until FIRE'd or transfer.  It would be 1.5 hours away versus 15 hours away.  Easily doable for weekends, Easter Egg hunts, Fireworks, Christmas, etc; with the many cousins and that kind of stuff, which our kids miss out on now.  Looking at the possible budget I noticed the following:

Now (average monthly)
Utilities (water, gas, elect, cable, trash, tele = 50,50,200,50,50,50= 450
House mntc = 200 (Drapes, paint, lumber for some project, always something)
House insurance = 40
Taxes, school and property= 275
Asc fee = 50

total 1,015 per month for the house => ~12k per year expenses specifically for the homestead, not counting mortgage (which we do not have)

If we rent, i guesstimated
Utilities (water, gas, elect, cable, trash, tele = 50,50,200,50,50, 50= 100
House mntc = 0 (maybe one time $ to setup apartment ??
House insurance =0
Taxes, school and Property =0
Asc fee =0

On the expenses above; I have a delta of about 11k. 

I have not factored in the Mortgage versus Rent.  Considering a phantom mortgage verusus the rents I've researched, the rents are still much less in the new location.

House owners; do my budget numbers jive with what you see. Am I out of line.

Renters; What am I missing in my numbers that I should add as a result of not having a house.  storage space (maybe, but free if need it from family), eat out more??, more time to spend $ due to no yard to mow or garden to keep.

I realize I am leaving out the emotional side of this where the house provides more than a roof, but some emotional value.

job

 

[sgeeeee]

When you buy a home, you are taking on significant debt and regular monthly payments. Those payments are buying equity in property that is likely to appreciate in value and provide benefit in the future. You are also receiving preferential tax treatment for those payments. If you choose to rent, you are likely to reduce your monthly burden, but the money you spend is not buying any future value and you are not receiving any tax breaks on your payments.

The rent versus buy decision is almost always more about lifestyle choice than financial considerations. Both from a financial and an emotional perspective, however, either decision can be better than the other. The best choice depends on the locality of the residence, timing of the purchase/rent decision, length of time the residence will be occupied, and priorities of the individual.

In some cities and regions of the country, purchase prices of houses are low while a shortage of rental properties places rental rates as high as or higher than mortgage payments. In addition, house prices may be climbing in these same areas. If you move to one of these areas, buying is likely to be the best financial decision. At the same time, soaring housing prices in many parts of the country have made renting a bargain. In these areas, renting can be financially advantageous. A few years from now, the housing/rental markets may be different in these areas.

Buying a house involves some fixed costs including real estate agent fees, inspection fees, document preparation fees, finance fees, title fees, . . . The number of people who have to be paid in order for you to complete a house purchase is staggering. In order to benefit from home ownership, you need to stay in the house long enough for the property value appreciation to exceed the fixed costs of buying and selling. In periods of rapid growth of a local real estate market, that time can be as short as a year. There are also cities that have experienced long-term declines in property value for more than a decade. From a financial perspective, rent/buy decisions, timing and time of ownership are all locally determined.

Lifestyle preferences are as important as the financial aspect is to the rent/buy decision. Given enough time, home purchase is almost always financially advantageous. Having a mortgage ends up being preferable to paying rent, but if you move frequently and don’t own a lot of things, renting often makes more sense and is cheaper than buying.

It is important to consider what types of properties are available for rent and purchase in your area. If a one room efficiency is plenty of home for you, it may be difficult to find equivalent property to consider for purchase. On the other hand, if you require a 4-bedroom home with land, you may find the rental selection very limited. In the end, these lifestyle choices are often more important to the rent/buy decision than careful analysis of local housing markets and rental offerings.

 

[Andre1969]

A few other things to consider is that nowadays, even when you rent, many places make you pick up the tab for electric/gas. So about the only freebie you might get is the water.

Oh, and don't forget renter's insurance.

 

[WRBT]

It could be regional but where I live when you rent you're still usually responsible for paying for electricity.

Also note you'll probably want renter's insurance for your stuff.

Also - you pay $50 for trash and $50 for water? WOW.

 

[WRBT]

Oops... Andre what are you hacking into my computer? Post thief!

 

[wabmester]

The biggest things you're missing are inflation and home appreciation.

Inflation of rents is the killer when you compare to owning a home, since your mortgage doesn't go up with inflation (but your home value does).

If you plan to rent for just a few years, then rent will probably be the cheaper path.

 

[kcowan]

It is impossible to generalize. Rent can sometimes be better. We rent in a building that has residents that have been renting for 35 years. We have been in our penthouse for 10 years. Of the other three PHs, 2 have been here longer than us. These people are well-off but choose this as a better way to live than to maintain a house. All are over 60 and retired.

Granted this is very unusual. But my point is that we cannot generalize. Could we have made more by owning? Yes but only if we were prepared to move to crystallize the gains. Meanwhile our investments have grown by more than the rental increase. At the end of the day that is all that matters. (We also enjoy the pool and tennis courts.)

 

[WRBT]

We're in between.

We own an townhome. It's got the higher HOA dues but they cover the exterior/roof, landscaping, pest control, water/trash/sewage, and we've got a pretty nice community pool.

We really dig it here though... end unit so there are windows on three sides, thick walls, garage, community limit (with waiting queue) on number of units that can be rentals.

 

[Mwsinron]

And then you have California houses. Throws the whole renting verse owning for a whole different loop. Go up to Lake Tahoe for a laugh. Glad I got into it early on

 

[obryanjf]

I'm not yet considering the mortgage versus rent yet. What threw me was the delta in mntc,decoration,taxes,utilities, etc. In my case, I think it will be about 11K/yr, excluding the renter insurance which I forgot.

As far as the rent, I'll put the equity in old loco house in some bonds/divi stocks and it will be close to covering the expected current rents. There will also be some upside (downside) potential to the base capital.

job

 

[MJ]

A few other things to consider is that nowadays, even when you rent, many places make you pick up the tab for electric/gas. So about the only freebie you might get is the water.

Oh, and don't forget renter's insurance.

I had those bills when I owned so to me rent is the total expense of the space plus gas/electric, with insurance optional.

 

[lazygood4nothinbum]

The biggest things you're missing are inflation and home appreciation.

Inflation of rents is the killer when you compare to owning a home, since your mortgage doesn't go up with inflation (but your home value does)

mr bubble is arguing for home appreciation?

relax, i'm just playing.

 

[Martha]

I had those bills when I owned so to me rent is the total expense of the space plus gas/electric, with insurance optional.

I don't think of renter's insurance as optional. Even if your stuff is junk, you want it for the libability protection.

 

[AltaRed]

I don't think of renter's insurance as optional.  Even if your stuff is junk, you want it for the libability protection.

I suspect 99% of renters don't realize that aspect and end up going unprotected......

DW and I own a condo townhouse that family members rent from us. While the development carries the basic property insurance, I also have a small rider policy that covers appliance upgrades, but the real reason is for liability insurance.

 

[cute fuzzy bunny]

Also dont forget that you may end up kissing your security deposit goodbye. Everyone I know thats rented in the last ten years (including my last two apartments years ago), the landlord tried to snipe the money. Had to take them to small claims court and they just defaulted and paid at the last minute. Seems this is turning into a standard policy with many landlords...

I also never got anything aside from water and sometimes trash pickup included in the rent.

 

[wabmester]

mr bubble is arguing for home appreciation?

When nobody will argue with me, sometimes I have to argue both sides of an argument by myself. 

Home appreciation is a huge factor when considering rent vs buy, but guessing what the rate of appreciation will be is another matter....

Pretty good rent vs buy calculator here.

 

[2B]

Some parts of the country (ie. "bubble land") have rents well below the cost of buying. I've seen reports where San Francisco properties can be rented for about 60% of the cost of buying. In these places investors are betting on huge appreciation to make their gains while the renter covers some of their costs.

In stable housing markets, the total cost of renting is usually pretty close to slightly higher than buying. That's seems to be true here in Houston. Buying properties to "flip" here is pretty difficult. Making money in real estate here requires a long time horizen or lots of smarts.

I wouldn't consider buying unless you are pretty sure you'll be there 3 years or more.

 

[cute fuzzy bunny]

When nobody will argue with me, sometimes I have to argue both sides of an argument by myself.

Wouldnt that be two unarmed men in a gunfight?

 

[wabmester]

Wouldnt that be two unarmed men in a gunfight?

Watch it fuzzy, or I might ask you if I should pay off my 5% mortgage and buy a P4-based laptop. 

 

[cute fuzzy bunny]

Absolutely on the first count. Absolutely on the second count as well since you live in a cool weather area. Get one with the desktop chip in it and an external processor heatsink, if at all possible.

 

[Alan]

During my last house stay I tracked all the major expenses over the 11 years of owning the house. Estimates on house maintenance vary from 1 to 5% of the value of the house and this includes replacing/repairing major appliances. We sold out house for $225k 2.5 years ago and rented - doing the semi-retirement thing, moving 6 hours closer to our daughter and family.

Our experience was that on average we spent on average 2.5%/year over the 11 years we lived there, and that included new AC and Gas boiler, new roof, major work to the pool, etc etc. I never tracked other things like all the chemicals we put on the grass or in the pool etc. We did have to pay for Flood insurance, termite insurance and re-building insurance. Our renters insurance is $22/month. Major appliances are included in our apartment rent also (Fridge/freezer, dishwasher, range, washer, drier etc)

On the emotional front we have enjoyed renting. We didn't know how we would feel about not owning a house after 26 years but the lazy genes have kicked in and love not having to do house and yard work.

 

[LOL!]

I didn't read through all the posts, but was struck by the desire to move closer to nieces and nephews et al., so that kids could visit cousins.   Our kids see their cousins about twice a year even though we live several states away.  The airport is only 30 minutes away and the plane time is 2 hours.  Some of the kids have flown as unaccompanied minors (it's a direct flight).  We sometimes even arrange vacations to overlap at the same location (like Hawaii) or a cousin or two goes with us on vacation while the parents stay home.

Sometimes there are other ways to bring the famliy closer than just moving. There is always MySpace, for example.

 

[Alan]

LOL,

All our kids' cousins plus our siblings and parents etc are in England and Australia and we have made the effort to keep them in touch. They have also travelled as minors which was a great experience for them They first went to England by themselves together when they were 14 and 12.

We have also given webcams to our son plus our parents and my sister. It really is a great way to keep in touch over the miles. My wife's mother at 80 is just really cool with her abilities on her PC.

 

[obryanjf]

I didn't read through all the posts, but was struck by the desire to move closer to nieces and nephews et al., so that kids could visit cousins.

OK, our plans have been twisted and turned completely. It's been hectic. About a month ago, I accepted one day a job from co B, 1.5 hours to the family circleversus 15 hours, less money, less vacation, less everything and the next day was offered by co A to do what I do now but from home. I've been tring to do this for 2 years and the stars/projects were just in allignment. I regretted de-committing, but did. Now we'll live 5 minutes from the family circle.

We've been packing for a couple for weeks now and where we were preparing to move to an apt for a quick move, are now trying to find a place to buy that we can stay in for many years. House expenses are now back in the budget, but the cost of living is much less, so it will balance nicely.

Sometimes, better to be lucky than good. I'll advise on how well the house sells.

job

 

[MooreBonds]

total 1,015 per month for the house => ~12k per year expenses specifically for the homestead, not counting mortgage (which we do not have)
...

On the expenses above; I have a delta of about 11k.

Items to add for home:
As others have said, it can be a crapshoot on major expenditures for a house.
5k-10k for a new roof
2.5k for a new furnace
2.5k for a new air conditioner
0.5k for a new water heater
and don't forget realtor's fees when you sell it (if you don't do FSBO and find someone w/o a realtor to buy it)
The bad part is that, unless you plan on living in a house for just 2 years, you will likely have at least one of the above fail - and quite possibly 2 or even all of them.

If it's just for a few years, I'd say rent is the far-and-away favorite.