Primary Residence: Rent vs Own

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.
 
Rianne said:
Rent vs Own for private residence

Any thoughts on the subject?
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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.
 
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
 
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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Cobra9777 said:
+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.
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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.
 
Out of Steam said:
It takes a long time for this to become an advantage, 5-7 years are an absolute minimum to cover transaction costs.
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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.
 
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. :mad:)
 
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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.
 
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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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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Senator said:
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.
Click to expand...

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/2014/upshot/buy-rent-calculator.html
 
davef said:
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/2014/upshot/buy-rent-calculator.html
Click to expand...

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.
 
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.
 
I bought my home over 30 years ago and paid it off early saving a good amount of money. Now it is worth 15+X the original price and is in a highly desirable location for a quick sell and maximum sell price when the time comes. The location was so good with everything we wanted in a retirement location that there was no reason for us to move when we retired.

The lot is large enough for a big pergola, a vegetable garden, workshop and driveway leading to the back, a couple of minutes walk to the beach, a mile from the commisary and exchange, lots of restaurants all within 5 miles, less than a mile to tennis courts for my wife, in a residential neighborhood with very little traffic so bike riding is safe.

I think we did well by buying instead of renting.

Cheers!
 
I bought my house in 1997 for $80k. Today it's worth $340k. Of course, I was just lucky enough to buy a year before a boom...had I really known what would happen with the market I would have bought 2 or 3 houses :LOL:

That being said, owning a house is a lifestyle choice. Some people want the option to move around whenever they want, and/or they lack the DIY skills necessary to offset some of the costs of home ownership, or they simply don't want to be responsible for any maintenance.

Other people want a "home base", have no intention of moving in the foreseeable future, and have the necessary DIY skills. And, of course, it all depends on the market and housing where you choose to live.

Different strokes for different folks...there is no one answer that will suit everyone.
 
+1 We tend to stay put..... 25 years in our last home and we have owned this home for 12 years and lived here full time for 6 years and have no plan to move... so I think owning is financially preferable for us. There are few year-round rentals of comparable properties in our area.... only one that I can think of.

Besides, as others have said, it is a lifestyle choice. DW is sanding some kitchen cabinets that were old and worn as I type this... if we rented we would have had to bug the landlord to refinish them because they were so unsightly and who knows if they would do it... by owning we control those things and can do what we want.

Another nuance of ownership that needs to be considered is that when owners make their mortgage payments a portion of those payments are building equity in the property... form of forced savings for people who are unable to save. If a renter is renting and investing the difference then that is one thing but if they are renting and pissing away the difference on other things then the home owner who is building equity is ahead of the game.
 
Cobra9777 said:
+1

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.
Click to expand...


I really like this tool as well. One of the great features is grey shadow bars that show you how adjusting the variables will adjust the output - before you actually make the adjustment. You can see that length of mortgage and down payment amount dont make much of a difference (excluding PMI of course).

However, I think I disagree with your conclusion. All I have to do is change the property tax rate to the average 1.81% for Texas and make the home price growth rate 1.1%. Then the rent is $1210. I agree with everyone else it is situation dependent.
 
Senator said:
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.
Click to expand...

Most of what you wrote is not comparing apples to apples. If what I want is to have any given house, is it better to rent or buy? If I rent a house in the burbs where it snows, then as a renter I still have to have my own mowers, snow blowers, rakes, etc. Likewise, you cant compare an apartment closer to work if that is not what you want.
 
Badger said:
I bought my home over 30 years ago and paid it off early saving a good amount of money. Now it is worth 15+X the original price and is in a highly desirable location for a quick sell and maximum sell price when the time comes. The location was so good with everything we wanted in a retirement location that there was no reason for us to move when we retired.

Cheers!
Click to expand...

Music Lover said:
I bought my house in 1997 for $80k. Today it's worth $340k. Of course, I was just lucky enough to buy a year before a boom...had I really known what would happen with the market I would have bought 2 or 3 houses :LOL:
Click to expand...

And if you two sell your properties, you know what you can afford to buy? Exactly your house. Actually less because of the cost of selling. These scenarios you describe only work well if you plan to move to a less expensive area. Great if you do. Otherwise, you are basically just on the property ladder.

Your just comparing the price you paid to the current estimated price. Did you count all the interest you paid to purchase the house over the years? Did you count all the money you sunk into the house over the years? Did you count the money you spent on upgrades (that contributes to the current value). Did you count all the property tax, insurance, etc? New roof?

I subscribe to the theory that if you own your primary residence, it is your biggest liability and not your biggest asset/investment. See Rich Dad Scam #6 here

I'm not saying I do not own a home :LOL:
 
Senator said:
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.
Click to expand...

You must not have looked at the NY Times calculator very closely. The assumptions can be set by the tool user. For example, the house appreciation, rent appreciation, and down payment are all settable by the user (as is everything else). Just because a reasonable default is set in the calculator doesn't make it "biased."

Other costs can be added in by including a fudge factor into the home maintenance section or additional housing costs section. No calculator will have 100% of the features everyone wants, but the NY Times calculator comes very close.

Although this rent vs buy question is discussed ad nauseam, I'll say that the financial question of rent vs buy is a well understood, bounded problem that can be solved to a very close approximation for a specific set of assumptions by using one of the readily available calculators.

The intrinsic value question in a rent vs by decision (such as pride in home ownership, freedom from maintenance chores when renting, etc) are highly personal and are unsolvable with a calculator.
 
clobber said:
And if you two sell your properties, you know what you can afford to buy? Exactly your house. Actually less because of the cost of selling. These scenarios you describe only work well if you plan to move to a less expensive area. Great if you do. Otherwise, you are basically just on the property ladder.

Your just comparing the price you paid to the current estimated price. Did you count all the interest you paid to purchase the house over the years? Did you count all the money you sunk into the house over the years? Did you count the money you spent on upgrades (that contributes to the current value). Did you count all the property tax, insurance, etc? New roof?
Click to expand...

Well, since I paid $80k, interest was minimal, and, in fact, interest, mortgage, and insurance was still less than renting.

I do most of my own maintenance and repairs, and so do most of my friends and family. When someone has a project, we all chip in and knock it off in no time and then have a barbeque and a couple pops. It cost me $1,200 to reshingle the house, and I built a 16x16 deck for $1,000 on a weekend. Those capable of helping will chip in, and the others without the required skills or who are too young or old to do the work chip in by cleaning up, fetching supplies, making lunch, etc.

But, as I said earlier, it's a lifestyle choice...I don't want to rent and I don't want to live in an apartment, so I have accepted that a certain amount of work is required to maintain my house as part of the cost for that lifestyle choice. Other people choose to rent because they like to move often or simply don't want to do the work or pay someone to do it. Neither choice is wrong.

Those who look at buying a home strictly as a financial decision are making a mistake. It has to be looked at as a lifestyle choice first, and then the numbers have to work to make it feasible.
 
+1 I view our home as a place we live in.... not as an investment even though we have had a gain on the sale of every property that we have owned.
 
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