Primary Residence: Rent vs Own

[Rianne]

One of my favorite shows, "Adam Ruins Everything" has been "on target" for many topics that most people view the wrong way. The factual information on this show always surprises me.

Recently, his topic was Rent vs Own for private residence. Financially, everything he said favors renting.
Cost buying a house
Cost upkeep
Cost property taxes
Cost selling
Cost remodeling
Appreciation historically is flat, unless you luck out.
Yard and garden can be a joyous hobby if you like that sort of thing in retirement.

His argument is renting has none of these expenses and you can move when you're unhappy with the situation.

People richer than me, over the years, have mentioned they rent and would never
buy. Any thoughts on the subject?

 

[euro]

I have never done a strict financial analysis (he may be right), but I prefer owning my place because I get to take most of the decisions, such as landscaping (DW has invested countless hours and many dollars into our garden, for example, and that's the kind of thing you can't just pack up and move). I get to decide if/when I want to move, instead of the landlord deciding not to renew the lease at the most inopportune (for me) time. I get to decide and implement remodeling, improvements, etc.

 

[Alan]

I grew up in a rental house, lived in rental houses while working through university and eventually bought a house shortly before we had our first child. Several houses later we moved to the USA where we lived in 2 rental houses in 2 States before settling and buying a house in Louisiana. 6 years before retiring, and while the youngest was still in college we sold up and moved into rental apartments and rental houses for the next 13 years. We bought a house 6 months ago and don't plan on ever moving, but who knows.

The advantages for us with rental was the ease of mobility, and with rental apartments the ease and low cost of maintenance while we traveled extensively. I can see both sides of the rent v own argument and it is both a personal choice and a factor of where you are in your life.

 

[Senator]

Renting will almost always be better financially than renting.

You rent what you need now, not what you need later. You can move to where you need to live, and avoid commute costs. No up keep, but more importantly no upkeep equipment and tools.

You have the flexibility to rent for six months in one place and six in another. You do not need to own one for 12 months, and rent six months in another place, a total cost of 18+ months. This is a common snowbird strategy.

The one thing you lose is control.

 

[RunningBum]

I'm sure if you search you can find plenty of threads on this.


Home appreciation isn't flat in most areas. It may not beat the stock market (but it can in hot areas), but it's generally pretty good. Meanwhile, rents WILL go up, count on it. And all those costs for owning are included in your rent. The only valid point here is that they are tougher to predict when owning, and you have to be sure to include the estimates in your rent vs. own comparison.


Especially if you rent a house, you could get booted if the owner sells, or for any other reason wants you out.


Mostly the financial decision is area dependent, and how long you plan to stay. The lifestyle decision is any number of factors, which euro touched on.

 

[Meadbh]

Renting will almost always be better financially than renting.

 

[dallas27]

Think if you don't need a large place, nor want to have the highest end finishings, renting makes a lot of sense. If you are someone who is going to live in one place for 20 years, wants to customize your home and what-not, buying makes more sense. Personally, I like the middle ground, a condo where i own the inside and rent the outside.

 

[Out of Steam]

The main advantage of owning the place you live in is locking in the capital costs (land plus long-term building) of living there at the price you purchase the place for.

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.

We've been in our current suburban house over 15 years, and our mortgage + taxes are about the cost of a two bedroom apartment in an older building in the area. We were able to defer major repair/renovation costs until the last few years when we could afford them better.

 

[Meadbh]

I grew up in two houses that my parents owned. After moving out in my early 20s, I lived in 6 different rentals in three countries over the next 9 years. Obviously my nomadic life was not conducive to buying property. Eventually I found a long term job and bought a house, which I kept for 20 years. I own my current home also.

After my parents died, I inherited their house in Ireland. They had lived there for over 40 years. I sold it at the peak of the property boom for a price that represented an 8% annual return on their original investment. That was an anomaly. Two years later the property market crashed and I would have been lucky to get half that price.

When I sold my first house after 20 years, I got about 3 times what I paid for it. I calculated it was about a 3% annual return. That's more in line with market expectations.

The bottom line is that a house is for living in. It should not be considered an investment. If you happen to make a decent profit on it, that's icing on the cake.

For most of us, there is a time in your life when you are mobile and rentals are the only way to go. When you are settled, owning is an option, but not a necessity. It's a lifestyle choice IMHO.

 

[Rianne]

All true, but looking back, we lost $75K selling our previous house in 2012 because we had to move due to loss of job. Current house, we remodeled approx. $70K to get it to our liking and love it now. We were able to FIRE while maintaining a small consulting business that gives us freedom to do what we want, when we want. I have to note, we made $110,000 on a house we sold in 2001, still not a break even situation.

We like our neighbors, on all sides of us and are socially connected to them. DH has yard work passion and keeps our garden and yard so lovely. We have 2 yellow labs, would never be able to have them in a rental. I guess the financial loss is worth the feeling of stability and feeling connected in the community. Renters aren't always looked upon as productive community members (don't mean to offend anyone). I know some friends would never buy near a rental complex for some reason. "Adam Ruins Everything" was really looking at pure financial aspects. There are so many other benefits to owning.

 

[GravitySucks]

I think houses as investments are much riskier than most think.
Buying in downtown Detroit or Buffalo in 1955 probably looked like a great idea at the time.
I have owned 3 houses in the same area. Made a decent return on the first two but doubt I'll make anything on the current place.
All that said I will continue owning so I can have my nice fenced lawn for the pup and no one complaining about my kitty. It's a life style choice, not an investment.

 

[jkern]

The rent vs own question is always highly dependent on location. Growing up and living in the SF Bay Area all my life, the answer has always been own. My daughter bought her first condo in 2014 and sold it in 2016. After all expenses (buying, selling, mortgage, taxes, HOA), she netted $75K. If she were to rent the unit for those 2 years, her rent would have been about $58k. The net gain is $133k in favor of buying. I know, this is just one example, but there are many more like it.

 

[RetireAge50]

I've only experienced price increases for houses. My current house has doubled in 15 years. My last house doubled in 10 years. Before that my parents house went up 6 fold in 25 years.

Only a single market (Seattle) and a single life (mine) so YMMV.

 

[Meadbh]

The rent vs own question is always highly dependent on location. Growing up and living in the SF Bay Area all my life, the answer has always been own. My daughter bought her first condo in 2014 and sold it in 2016. After all expenses (buying, selling, mortgage, taxes, HOA), she netted $75K. If she were to rent the unit for those 2 years, her rent would have been about $58k. The net gain is $133k in favor of buying. I know, this is just one example, but there are many more like it.

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?

 

[jkern]

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?

That is true, but I'm sure she would have stayed in her condo. The appreciation allowed her to upgrade to a Single Family Home.

 

[pb4uski]

Renting will almost always be better financially than renting. ....

Hard to agree with that statement.

 

[Greencheese]

I think news about markets like San Francisco/Portland/Seattle/NYC/etc... overshadow that a vast majority of real estate in this country is worth either the same or even less over time when owning. Think of places like Flint Michigan, I highly doubt some of those owners will ever get anything for their homes...

 

[Cobra9777]

Renting will almost always be better financially than renting...

Hard to agree with that statement.

+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.

 

[pb4uski]

I've only experienced price increases for houses. My current house has doubled in 15 years. My last house doubled in 10 years. Before that my parents house went up 6 fold in 25 years.

Only a single market (Seattle) and a single life (mine) so YMMV.

+1 We have sold 3 properties.

House 1... bought Mar 1984 for $76,500... put about $10k into it in materials and sweat equity... sold in Dec 1986 for $156,000. Got lucky that we were in a hot housing market at the time and moved to a lower COL area about the time the market was peaking.

House 2.... bought Nov 1986 for $86,000... put about $83k into it over 25 years....sold in Oct 2011 for $215,000.

Building lot.... bought July 2004 for $61,200... put $10k in sitework... sold June 2006 for $117,000.

 

[razztazz]

Renting will almost always be better financially than renting.

I'd call it a tie

 

[Nightcap]

I live in a condo community. Owning is the price of admission.

 

[RunningBum]

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.

 

[haha]

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

 

[brett]

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.

 

[Scuba]

+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.