Rent versus Buy

[TargaDave]

Rent or Own: own (kids and nesting types)
Mortgage: no on retirement home, yes on primary (Selling primary this spring and moving this summer)
Part of Net Worth: mostly ignore NW and just look at investments. Trying to ignore investments more as well (haven't added anything up since Dec)
Part of RE planning: only on expense side and something the kids will inherit. Oh yeah, DW and I enjoy woodworking, home improvement projects and gardening (without the time pressure) so retirement home will provide retirement entertainment

 

[beowulf]

Rent or Own: Own
Mortgage: Absolutely - who needs all that money tied up in a home not earning anything - mortgage is approx 25% of home value
Part of Net Worth: Yes, but under the line - not counted in liquid assets
Part of RE planning: For purposes of ever buying another home, yes. If we decide to rent in our eventual retirement area, we will get a big boost to assets by selling this one.

 

[donheff]

if you live in a house forever does it matter if its worth a 100,000 or a hundred million.? its a moot point except to your heirs.

a reverse mortgage is just a loan with a balloon payment due when you die or sell. hardley something id cound as an asset. besides any loan you take from equity has to be subtracted off net worth any way. again a moot point

Those two sentence seem to conflict. If the house is worth a hundred million you can take out one heck of a reverse mortgage. You could live forever in that house with no other assets and still live like a Saudi prince. So what if the payments are subtracted from your net worth? So are withdrawals from a portfolio.

Bottom line - ever dollar in assets is a dollar in assets.

 

[Sandy]

I have an even more fundamental question. What possible use is there for a computed net worth

As a legislative employee I need to complete an annual financial disclosure. I have to report investments that are either over $2,500 or over a percentage of my networth. Since my networth gives me a higher threshold to avoid sharing my personal info, it's a really good number to know/estimate.

 

[retire@40]

...If the house is worth a hundred million you can take out one heck of a reverse mortgage. You could live forever in that house with no other assets and still live like a Saudi prince. So what if the payments are subtracted from your net worth? So are withdrawals from a portfolio...

Exactly. Bottom line is that for an asset to count as an "investment" it must be able to provide cash flow. Any asset that does not provide cash flow is a cost.

So, essentially you either have "cost assets" or "investment assets" if I can make up that terminology. Of course, they can be interchangeable at different points in time. If you change your mind down the road and decide to liquidate the home that you planned on living in for the rest of your life, that home would change categories from a "cost asset" to an "investment asset."

 

[sidney]

1. Own
2. No mortgage
3. Only for estate planning purposes.
4. No

I think we are missing a bigger opportunity than simply renting homes. This concept could be expanded to children. Owning children is extremely high cost and the financial returns are low. Renting could be significantly better. In fact, renting could be zero or negative cost. I checked with a neighbor and he would be willing to pay me a small stipend to rent his kids for a day a week -- in effect, negative rent, no maintenance fees, no long term lease. I didn't ask him about his dog but I am betting he'd be willing to rent me that too.

 

[rgarling]

Exactly. Bottom line is that for an asset to count as an "investment" it must be able to provide cash flow. Any asset that does not provide cash flow is a cost.

So, essentially you either have "cost assets" or "investment assets" if I can make up that terminology. Of course, they can be interchangeable at different points in time. If you change your mind down the road and decide to liquidate the home that you planned on living in for the rest of your life, that home would change categories from a "cost asset" to an "investment asset."

Your meaning is clear; HOWEVER... the term "net worth" also has a well defined meaning. your meaning is not equivalent to the meaning of "net worth".

 

[Moemg]

I think we are missing a bigger opportunity than simply renting homes. This concept could be expanded to children. Owning children is extremely high cost and the financial returns are low. Renting could be significantly better. In fact, renting could be zero or negative cost. I checked with a neighbor and he would be willing to pay me a small stipend to rent his kids for a day a week -- in effect, negative rent, no maintenance fees, no long term lease. I didn't ask him about his dog but I am betting he'd be willing to rent me that too.

Thanks for a good laugh this morning !

 

[cute fuzzy bunny]

Exactly. Bottom line is that for an asset to count as an "investment" it must be able to provide cash flow. Any asset that does not provide cash flow is a cost.

Sorry, cant buy that definition. By this structure, a non dividend paying stock or bond would not be an investment. Nor would gold or any other sort of physical asset class.

I guess 1000 acres of prime, fast appreciating buildable land would not qualify as an investment because it is not producing income?

Over the last 15 years my primary residences have turned in over a half million in tax free capital gains. Its on my tax returns as such. Even by your narrow definition, doesnt that qualify it as an investment?

None of my IRA investments produce accessible cash flow...does that mean they arent investments and I shouldnt include them in my net worth?

 

[jazz4cash]

Exactly. Bottom line is that for an asset to count as an "investment" it must be able to provide cash flow. Any asset that does not provide cash flow is a cost.

I disagree also. Even though I don't count my home as an investment, I know plenty of folks that live in thier investments. Thier home offsets the cashflow required for housing expenses.

 

[aenlighten]

My house is an asset

for the rent it avoids. On an operating basis, the cost of owing is only 25% that of renting for me. That is real cash flow. From a planning viewpoint, it is an expense, but much less of one. I have no plans on liquidating it, so it is not part of my spending portfolio.

 

[W2R]

I disagree also. Even though I don't count my home as an investment, I know plenty of folks that live in thier investments. Thier home offsets the cashflow required for housing expenses.

I just remove the paid off house from my plan, and lower my estimated spending accordingly. Then I don't have to deal with it. So far, I haven't seen any problems with this approach.

Naturally I include taxes, insurance, and upkeep as expenses in my plan. Works for me.

 

[Bestwifeever]

If I need a spot-on net-worth financial document well duh, of course I would count my house (thank God I don't need that level of analysis). But I know a lot of house-rich people and I'd rather not pretend I'm a millionaire because on paper I think my house is worth x amount of dollars. If you have turned your property over and realized a profit that was not sunk into the next house good for you--I would count that profit too in my nest egg. I see our nest egg strictly as, is there enough money to live on to do what we want to do? I'm not ever using my house for that, God willing.

So really maybe just substitute "nest egg" for "net worth" and see it as a psychological "live beneath your net worth"--does that help clarify it? It doesn't seem that complicated of a decision to count it or not.

 

[retire@40]

Sorry, cant buy that definition. By this structure, a non dividend paying stock or bond would not be an investment. Nor would gold or any other sort of physical asset class....

Ahhhh, no. If you plan on selling the stock or bond or gold to help fund your spending, then it would still qualify even though it's not producing a dividend.

But if you buy a stock to hold forever and never sell it until you die, then it is a cost. It will probably be an investment to the person that inherits it and decides to sell it to help fund THEIR spending.

 

[rgarling]

So really maybe just substitute "nest egg" for "net worth" and see it as a psychological "live beneath your net worth"--does that help clarify it? It doesn't seem that complicated of a decision to count it or not.

I suppose the problem is that the OP's question was not well defined. It really isn't clear why the information about "net worth" was relevant to the topic of owning vs renting a house. In any event, a "net worth" calculation is pretty straight forward, and I hadn't seen the "nest egg" calculation before.

 

[cute fuzzy bunny]

Anyone here seriously feel like they will stay in their house forever and it wont be sold until they die...? 100%?

Arent we just dancing a little too hard to avoid simply saying that for emotional purposes, the home is unavailable as an asset or as a functional component of their investing strategy?

I've made over a half million by buying and selling personal residences. By paying the home off I've limited my demand for spending during bear markets. The store of value it represents that I can borrow money from in emergency circumstances plays a role in how I invest. That I can reverse mortgage it late in life means I dont have to have a plan for my equities and bonds that can survive until I'm 100. Or if we need a bunch of money for some health care related issue, we can sell it and rent later.

So its mere presence, besides being a regular money maker, means I can invest in a completely different manner with different objectives, different risk profiles, and fewer concerns about a number of serious matters.

Vs renting...I get none of that. No capital gain potential. No control over my required spending...still have to make the rent every month. No influence (pos or neg) on my investing.

I'm drawing 3-4 pretty major benefits out of homeownership as they relate to investing and my long term financial health.

Again, if you live in the wrong part of the country or have no interest in homeownership, the matter is moot.

 

[Bestwifeever]

The "nest egg" calculation is what I show my husband when he wants to know when we can retire--for us it's when there's enough money there to support our hoped-for lifestyle. I think it's obvious I know nothing about finance, only our personal threshold--sometimes I feel like the kid in the class who keeps asking the teacher to explain something and can't quite get it.

 

[W2R]

Anyone here seriously feel like they will stay in their house forever and it wont be sold until they die...? 100%?

Arent we just dancing a little too hard to avoid simply saying that for emotional purposes, the home is unavailable as an asset or as a functional component of their investing strategy?

I've made over a half million by buying and selling personal residences. By paying the home off I've limited my demand for spending during bear markets. The store of value it represents that I can borrow money from in emergency circumstances plays a role in how I invest. That I can reverse mortgage it late in life means I dont have to have a plan for my equities and bonds that can survive until I'm 100. Or if we need a bunch of money for some health care related issue, we can sell it and rent later.

So its mere presence, besides being a regular money maker, means I can invest in a completely different manner with different objectives, different risk profiles, and fewer concerns about a number of serious matters.

Vs renting...I get none of that. No capital gain potential. No control over my required spending...still have to make the rent every month. No influence (pos or neg) on my investing.

I'm drawing 3-4 pretty major benefits out of homeownership as they relate to investing and my long term financial health.

Again, if you live in the wrong part of the country or have no interest in homeownership, the matter is moot.

I guess I qualify as living in the wrong part of the country (if I wanted to make a fortune in real estate, that is!). I will probably sell my paid off house and buy another of maybe $50K less, of which $12K will go to the realtors, and some will go to fixing it up, moving, and so on. Any left over will be used for furniture.

Still, what you are saying about a paid off home affecting my investing strategy is true in my case, as well. It does affect it, but no differently than a lower core spending level would. I don't see myself borrowing money from it.

But then, I suppose one never knows what the future will bring. Have you ever noticed that everything will go along fine for a few years and then BLAM!!! Something will come at you from left field. Fate or whatever will knock you flat, and it's time to pick yourself up and start all over again with a somewhat befuddled look on your face.

I think it's nature's way of keeping us young, alert, and adaptable.

 

[Khan]

I don't include the house in net worth: it's worth less than $70K, and I assume if/when I sell it it will be a tear down. Some days, I wish a tree would fall on it.

 

[Khan]

I guess I qualify as living in the wrong part of the country (if I wanted to make a fortune in real estate, that is!). I will probably sell my paid off house and buy another of maybe $50K less, of which $12K will go to the realtors, and some will go to fixing it up, moving, and so on. Any left over will be used for furniture.

Still, what you are saying about a paid off home affecting my investing strategy is true in my case, as well. It does affect it, but no differently than a lower core spending level would. I don't see myself borrowing money from it.

But then, I suppose one never knows what the future will bring. Have you ever noticed that everything will go along fine for a few years and then BLAM!!! Something will come at you from left field. Fate or whatever will knock you flat, and it's time to pick yourself up and start all over again with a somewhat befuddled look on your face.

I think it's nature's way of keeping us young, alert, and adaptable.

"That which does not kill us, makes us stronger."
-Nietzsche

"Life is what happens while you're busy making other plans."
-John Lennon

 

[W2R]

"That which does not kill us, makes us stronger."
-Nietzsche

Enough, I'm strong enough already!!! I must be the strongest woman in the universe by now.

"Life is what happens while you're busy making other plans."
-John Lennon

So true. I've been pretty busy making ER plans, so I guess it's about time. (shudder)

 

[mathjak107]

Those two sentence seem to conflict. If the house is worth a hundred million you can take out one heck of a reverse mortgage. You could live forever in that house with no other assets and still live like a Saudi prince. So what if the payments are subtracted from your net worth? So are withdrawals from a portfolio.

Bottom line - ever dollar in assets is a dollar in assets.

the people who would take a reverse mortgage do so because they need the cash. up front cost for a reverse mortgage are brutal. a 74 year old woman with a 300,000 home taking a 180,000 loan which is max for a reverse mortgage would pay as much as 30,000 in up front costs. that would leave most in a real pickle right off the bat.
but getting back to the origional question about counting the house in your net worth, taking a loan against your home merely subtracts off the equity of the home so the fact that you can borrow up to 180,000 means you should really subtract 180,000 in value off the house value in your calculation if that was your ultimate goal.

 

[Purron]

"Life is what happens while you're busy making other plans."
-John Lennon

I love this quote Khan. Always been a big Lennon fan.

 

[JB]

1) Do you rent or own?
2) If you own, have you paid off your mortgage?
3) Do you count your home into your net worth equation?
4) Does your home figure into your financial plans during retirement?

1) Currently Rent - moved in 01, sold old home in 03, then prices skyrocketed. We like our rental and a comparable purchase would cost 41x annual rent.

2) When I owned I payed off the mortgage as soon as I accumulated a large enough portfolio where my bond assets were paying less than what I was paying to borrow.

For many folks buying works out well because it forces them to accumulate an asset (the house), and they would not otherwise have the discipline to save.

Welcome to the forum MMND.

 

[ladelfina]

for an asset to count as an "investment" it must be able to provide cash flow. Any asset that does not provide cash flow is a cost.

Retire@40.. are you 40? are you retired? (sorry if I admit to not taking the time to investigate)..

As has been explored already in many posts here: implicit "cash flow" comes from NOT having to pay rent. Rent MAY be inferior at times, but what renting brings one may also be inferior.

Personal housing (to me) is an asset class unto itself.. one that precludes me -largely- from having to WORRY about other asset classes. My accounts can go to near zero and as long as I can somehow come up with prop.taxes this baby is MINE. Try that with most any other kind of investment.

My old house in the US was definitely an investment, though I did not intend it as such. I just knew that buying into that neighborhood would not do me wrong. Nor did it. I would not be sorry to've kept holding that property to this day nor into the future, notwithstanding the general downturn; its proximity to the city center is and was key. I sorely regret not hanging onto it, but didn't want the hassles of overseas prop. mgmt. So be it.

NOW, what I have traded for.. is "a castle" (sez my mom).. and not nearly as liquid an "investment" (Italians mainly and Europeans generally do not change houses easily as do Americans). I may have made a mistake, but it will be seen what rich Italians or foreigners may want to pay tomorrow for a no-need-of-restructuring stone villa with 3/4 acre of land <15 minutes from the A1 (major) h'way, halfway btw. Rome and Florence. Who knows? I only know it could be worse.

Anyway.. if I hold shares of CITI.. what? Even If I were to have 100,000 shares.. will they let me camp out/sleep rough in one of their many atria in NYC, London, Dublin?? in the kiosk of one of their ATMs in Dubuque or Dakka?

No.

Here, however, I freely camp out in MY atrium. You are all welcome to come pitch a tent and see the Milky Way free of charge, weather permitting.

Another small aspect for you to re-assess, retire@40:

if you buy a stock to hold forever and never sell it until you die, then it is a cost.

Unless it pays a dividend.

To me,
Stock dividend = money to live on.
House paid for outright = freedom from vagaries of market rent and random (land)lords.

This is a bad thing?


Answers:
1.) Own
2.) Yes
3.) Yes, to an extent
4.) Yes, to an extent

The "extent" is the difference between our current home size/value and the lower limit of a future 'livable' home size/value for us.


Retire@ 40: I really tried, but could not comprehend, your distinction between "a 'cost' asset" and "an 'investment' asset".

To me, a cost is a cost; an asset is an asset. A house has cost aspects and investment aspects .. but so do most all other assets. A mere house is less impegnative than a Van Gogh. Wanna buy a 'Banksy' for £200,000? Wanna try and INSURE it?

I must be the strongest woman in the universe by now.

W2R: ayuh!