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Old 08-12-2017, 11:11 AM   #21
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I live in a condo community. Owning is the price of admission.
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Old 08-12-2017, 11:12 AM   #22
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It takes a long time for this to become an advantage, 5-7 years are an absolute minimum to cover transaction costs. Without reasonable certainty of staying in one place, renting is probably better.
There are no absolutes when it comes to predicting finances in the future. I came out way ahead in just under 5 years, and it wasn't the SF Bay or another super hot area either. I knew with 90+% certainty that I'd be selling in that time frame, so I did a full spreadsheet with all the factors (rent, investing the down payment money, closing costs, sales commission, maintenance, etc) and made the financial decision to buy, and it turned out better than expected.

I've also come out way behind holding a house for 7 years. 5-7 years is a decent guide for minimum stay, but "absolute" is not a term I'd use.
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Old 08-12-2017, 11:25 AM   #23
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Your daughter was lucky to make a profit after two years of ownership, but she was in a rising seller's market. How would she feel about selling into a depressed buyer's market?
So far these things are cyclical in dynamic housing markets. I mean west coast in a coastal city, or NYC, or etc. Rent during sellers market, and if you are still there, buy when houses are hard to sell. Some owners always need to sell no matter how disadvantageously, so this can be done.
Then if you yourself need to sell into a buyers market, you still have a good shot at coming out at least even.

What I do hate about buying, is that the owner knows everything that is wrong with his house, but keeps quiet about the pig farm permitted up the road a bit, and instead tells you about a faucet leaking.

Ha
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Old 08-12-2017, 11:33 AM   #24
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Does it not depend on the market in your area, your personal preferences, and alternate investment for you capital that you would be comfortable with?

We sold and downsized into a storage container, then traveled for seven months. RE market was good. Looked at the market 9 months later and it was on a downswing. Renting made more sense.

We rented for four years. We put our home equity into the market. Four years later we bought..prices were the same or slightly lower than four years ago.

We traveled extensively during those four years. Two big overseas trips a year, each one was 2-3 months. The after tax return on our home equity paid for our condo rent and funded just about all of our travel. So renting was best.

Our friends in Vancouver has seen an 18 percent appreciation in their home each year for the past several years. On sale, this is tax free money, no capital gains. So for them, owning was better than renting. But it is only better when the actually realize the gain on sale. You cannot spend paper gains.
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Old 08-12-2017, 12:43 PM   #25
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+1



The most comprehensive analysis tool I've seen on this question is the NYT Rent/Buy Tool. According to the default scenario, which is based on a $250K house, you'd need to find an equivalent rental for $884/mo or less in order for renting to be the better financial solution. Maybe there's some place in the U.S. where you can rent a $250K house for $884/mo, but in my neck of the woods, they start at about twice that rent.



You can play around with the variables, but the only way you can swing the conclusion in favor of renting is if you sell the house after only 1 year of ownership or assume some astronomical level of maintenance costs, HOA fees, etc. Based on my experience using this tool and others to analyze dozens of downsize options in Texas, any reasonable set of assumptions will generally favor owning.


I bought my first house in Houston in 1983. Sold it in 1990 for a sizable loss. Don't remember details. Then bought in Orange County CA in 1990, sold in 1993 for $50K loss. Bought another SFR in LA County in 1996 and sold in 1999 for small loss after selling costs. Had a second home in the desert and sold it for multi six figures loss.

Fortunately these losses were offset by some huge gains on two other properties. Currently sitting on lots of equity in primary residence. So it can work out well, but even in "hot" markets, it doesn't always. The hot markets can decline a lot during recessions. Agree with others that it's a lifestyle choice rather than a financial no-brainer.
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Old 08-12-2017, 01:02 PM   #26
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Due to a career that came with frequent transfers and then a move from one retirement location to another,I've had the chance to experience:
- renting apartments
- renting a house
- owning a house, renting it to others for 5 years and returning to it and ultimately selling it at a nice profit
- owning a house, living in it for 3 years and selling it at a modest profit
- renting a house for a year, buying it and then, due to an unexpected early transfer, selling it after a year and just breaking even
- living in government-provided housing
- living in a house for 13 years and selling it at a very nice profit
- living in a house for 8 years and selling it at a significant loss
- living now in a duplex condo

All-in-all I came out significantly ahead financially. Part of that was dumb luck. Part was buying and selling in an era of rising home values. Part was not being greedy when selling (so as not to have the home empty and unsold.) Each was probably the right, or at least an acceptable, decision for the time in our lives. This condo situation seems to be working out pretty well, the only exception being the lack of control over condo fees. At 72 my intention is that my next move will be to a cemetery. But if, at this stage of my life, if I had to move it would be to a rental where someone else did all maintenance and yard work.
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Old 08-12-2017, 03:17 PM   #27
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Rent vs Own for private residence

Any thoughts on the subject?
This is the eternal question that keeps coming up, here and elsewhere. I think it's safe to say the answer is deeply personal.

For me, I've rented my whole life (including since FIRE in 2010) and have never regretted it. In fact, many times I've been thankful for the flexibility.

The two or so years that I owned my residence was possibly the worst two years of my life, a macabre dance of predatory realtors, constant repairs, high taxes, delayed-action dirtbag neighbors, and 24-hr dog yelping (in stereo).

My decision to be a homeowner slowed my journey to FIRE by at least a year, and possibly two.

As I said above, you may have a different experience.
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Old 08-12-2017, 03:52 PM   #28
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I'd call it a tie
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Old 08-12-2017, 04:30 PM   #29
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There are a lot of variables in this argument and my guess is "it depends."

Wish I could find my copy of "The Coming Generational Storm" by Kotlikoff and Burns. They have a treatise on owning vs renting and come down squarely on the side of owning. IIRC the tipping point is that owning gives rise to some real tax advantages - not just the ones on mortgage interest. It has to do with the value of equivalent rent being supplied by the house - which one does not need to w*rk for (and therefore does not need to pay taxes on the income.)

Heh, heh, since we do both (rent and own) I would say "yes" renting and owning are the best way to go - under the right circumstances. YMMV
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Old 08-12-2017, 04:57 PM   #30
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Dealing with this now. I found the NYT calculator that makes sense to me. You may want to check it out as it takes in most if not all the factors for buying vs renting. https://www.nytimes.com/interactive/...alculator.html
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Old 08-12-2017, 08:53 PM   #31
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Owning a home is not a monetary investment for us. It is an investment in our quality of life.

We live in a college town where relatively expensive apartments are just not that nice. But houses for purchase are a great value and property taxes are ridiculously low. We also have 3 incredible lakes in our city/town.

We would love to have a smaller house and travel in our fifth wheel RV half the time. But raising a 6 year old girl keeps us in one place. My wife also has a pain mgmt. clinic she has to see every 30 days without fail.
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Old 08-12-2017, 09:46 PM   #32
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Originally Posted by Cobra9777 View Post
+1

The most comprehensive analysis tool I've seen on this question is the NYT Rent/Buy Tool. According to the default scenario, which is based on a $250K house, you'd need to find an equivalent rental for $884/mo or less in order for renting to be the better financial solution. Maybe there's some place in the U.S. where you can rent a $250K house for $884/mo, but in my neck of the woods, they start at about twice that rent.

You can play around with the variables, but the only way you can swing the conclusion in favor of renting is if you sell the house after only 1 year of ownership or assume some astronomical level of maintenance costs, HOA fees, etc. Based on my experience using this tool and others to analyze dozens of downsize options in Texas, any reasonable set of assumptions will generally favor owning.
Do they count the cost of buying only what you need, not compare a 3BR rental and a 3BR home? Rent a 1BR when you need a 1BR. Then when you need a 2BR, rent a 2BR.

Do they count the cost of a closer commute when you rent a closer place to work?

Do they count the cost of mowers, snow blowers, rakes, shovels etc. that you need to buy to maintain a property? Do they count the cost of other hand tools? They should be comparing living in a house and hiring out 100% of the work.

Do they count the cost of buying a home, only to put in a bunch of money right away to fix a major issue.

Most of these studies only compare a rent payment with a house payment. They do not compare the savings you can get by being a renter. A $250K house is not going to be had for a $884 a month total cost.
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Old 08-12-2017, 10:10 PM   #33
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It takes a long time for this to become an advantage, 5-7 years are an absolute minimum to cover transaction costs.
Perhaps this is a good estimate in an average market. Around 10 or 15 years ago, I bought 3 properties in a swiftly rising market, with just 10% down on each, and was way ahead just 18 months later. In fact, I was so far ahead that I sold all 3, put the money into equities, and this is a good part of the reason I was able to ER.

As RunningBum says, there are no absolutes.
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Old 08-12-2017, 10:21 PM   #34
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I think it is more a lifestyle choice. I did out of curiosity check out the price of some smallish apartments in my town, near the railroad, which looked nice. I was really shocked at the high price. It was more than the monthly cost of my my house. ( I have to wonder about really getting the property tax deduction on my house though. It seems to all be right back there on the alternative minimum tax line. )
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Old 08-12-2017, 10:59 PM   #35
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I'm in the camp of it being very situation dependent.

In Vancouver, housing prices are very expensive. To address costs, a lot of people who purchase places rent out part of their home like a rental suite or the full basement.
However, I own my own place and I don't find we need to spend a lot of money on upkeep.

There are a lot of intangibles like, we're lucky in that we don't have crazy neighbours. I like owning my own detached home and making my own decisions/rules. Not sure if I'd love renting or living in a strata situation.
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Old 08-12-2017, 11:57 PM   #36
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I think that it will always be a personal lifestyle decision and very situationally specific. For it to be otherwise would mean we would all rent or all buy. The fact that the ratio is about 60/40 for own/rent in the US implies both approaches are viable. Although, I suspect some renters would like to own but can't afford it at a particular time.

So why do the majority of people decide to buy even though a strong financial case can be made to rent? I suspect it's pride of ownership, sense of control, brainwashing, possibly even ignorance? Can anybody think of others?

Effectively the market has put a value on these factors and that it s why is usually cheaper to rent.
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Old 08-13-2017, 12:09 AM   #37
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Timing and location is everything. As is the value of your free time. In my case, consecutive home ownership was a financial success far exceeding any rent "savings". But it came at the cost of sweat equity, and certainly much less free time. That sweat equity is what will allow me to FIRE when I am ready. For my original down payment of $10k on my first $89k house in 1986, and always having a mortgage payment much lower than the rent I would pay for what I wanted, I will own a $500k house outright in 2020, not having to save any more to do that. The appreciation on the sale of each house funded the larger down payment for more of what I wanted in each next house. This house would already have been paid off except for an expensive divorce during that time. But then again, the $200k profit on one house in 6 years by selling in 2007 vs what would have been maybe $50k a year later, was pure luck. I have skill sets that saved me a lot in maintenance & improvements, but of course there are tool and material costs, and some things, like paving a driveway, are an outright cost. But renting allows zero sweat equity. I rented from 1980 to 1986, and except when I had a roommate for two of those years, I had nothing to show for it, but a lot more free and fun time. My next home when I FIRE, will be a townhome condo, with a 30 year mortgage and a down payment big enough to avoid PMI, as long as rates are comparatively this low compared to investment returns. I want all my free time back, still have the home I want, and a realization of the profits from those previous houses..
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Old 08-13-2017, 04:41 AM   #38
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Do they count the cost of buying only what you need, not compare a 3BR rental and a 3BR home? Rent a 1BR when you need a 1BR. Then when you need a 2BR, rent a 2BR.

Do they count the cost of a closer commute when you rent a closer place to work?

Do they count the cost of mowers, snow blowers, rakes, shovels etc. that you need to buy to maintain a property? Do they count the cost of other hand tools? They should be comparing living in a house and hiring out 100% of the work.

Do they count the cost of buying a home, only to put in a bunch of money right away to fix a major issue.

Most of these studies only compare a rent payment with a house payment. They do not compare the savings you can get by being a renter. A $250K house is not going to be had for a $884 a month total cost.
I think in their own way, the things you mention are included. For example the user of the tool must project

- Length of time plan to stay
=Home price growth and rent price growth
-Investment return and inflation
- Taxes and closing costs
- Maintenance and condo type fees. I also think it has a first year maintenance/fix up bump-up for home purchase.
- Additional renting costs such as the lost revenue from a security deposit.

It appears you may not have reviewed the tool in depth yet. If that is not correct, I apologize. If I am correct, I would look forward to reading your comments following a closer review. I think your experience with this could be helpful to the analysis I am making now with my move.

https://www.nytimes.com/interactive/...alculator.html
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Old 08-13-2017, 05:48 AM   #39
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I think in their own way, the things you mention are included. For example the user of the tool must project

- Length of time plan to stay
=Home price growth and rent price growth
-Investment return and inflation
- Taxes and closing costs
- Maintenance and condo type fees. I also think it has a first year maintenance/fix up bump-up for home purchase.
- Additional renting costs such as the lost revenue from a security deposit.

It appears you may not have reviewed the tool in depth yet. If that is not correct, I apologize. If I am correct, I would look forward to reading your comments following a closer review. I think your experience with this could be helpful to the analysis I am making now with my move.

https://www.nytimes.com/interactive/...alculator.html
It really does not include the things I mentioned and is biased towards home ownership. If the choice is buying a home, or renting a similar place next door, buying might be a better choice. Once a renter maximizes the rental situation, a renter can save a lot more than home ownership.

Living close to work, saves commute costs and time. Saving 30 minutes a day, amounts to 100+ hours a year. That is a large savings. A renter can each each time they change jobs. At $20 an hour, that is $2,000 a year savings after tax.

You can rent a 1BR apartment here for less than $884, and the average cost of a home is close to $250K. Why rent a 3BR when all you need is a 1BR at that time of your life.

The tool assumes a rent growth of 2.5% and a housing appreciation of 3%. Making them both the same requires a $971 comparable rent. Why they are different is a bias towards ownership.

Will you join a gym and have that expense as a homeowner? Many rentals have workout rooms that are free. That expense is not there.

What if your neighborhood gets bad and crime rises? How does that impact he monthly cost in terms of "peace of mind".

It assumes a 20% down payment. Factoring in a smaller down payment does not include any PMI or MIP. Not many first-time homeowners have 20% to put down.

"In addition to the interest rate and down payment, the calculator takes into account the mortgage-interest tax deduction.". Who knows if the mortgage interest rate deduction is better than a standard deduction? And if it is, it is not all the interest paid that is a benefit, only the amount over the standard deduction. In MN, you can get a tax credit of as much as 17% of your rent paid back in lieu of a mortgage interest rate deduction.

Travel a lot? What is the peace of mind worth being able to just leave. No furnace worries, no falling tree worries, etc.

It really is dependent on how a person decides to live. If you wanted the absolute minimal housing expenses for the next 10 years, renting is likely the way to go. If you are comparing two similar housing situations, ownership is likely the way to go.
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Old 08-13-2017, 05:53 AM   #40
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I agree that it is very much situation dependent on a number of factors.

When we purchased our current home, the local market was at very depressed levels and the total of P+I mortgage payments + rates + management fees was higher than rent on the same apartment. For us it was a no-brainer. Fast forward 12 years and the current mortgagee valuation is about 150% higher than what we paid and the mortgage (increased when I borrowed to fund my partnership equity) has less than 4 years to run. ROI is obviously much higher than 150%.

Sure, we could have made other investments that did better but we did well enough and live in a place we can call home as long as we want.

Would we buy today? No. At current prices the numbers favour renting - just as they did twenty years ago at the previous market peak.

What happens if/when the market tanks? At some point we would borrow against the equity and buy another property.
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