Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Rent versus Buy
Old 01-28-2008, 08:39 PM   #1
Dryer sheet aficionado
 
Join Date: Jan 2008
Posts: 45
Rent versus Buy

For those interested in sharing constructive conversation and a polite exchange of thoughts and ideas about this sometimes controversial topic, read this article first:

Housing mess makes buying decisions harder - Money - MSNBC.com

I'll pose the first questions:

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?
__________________

__________________
MillionaireMommyNextDoor is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-28-2008, 08:43 PM   #2
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 463
1. Own
2. Still have mortgage
3. Yes
4. Not so much... it's a potential source of investible assests, but then, I'd have to use the income from those assests to live somewhere else. I think of it more as 'cushion' than anything else. Keep in mind that our current house would sell for (I estimate) somewhere between 1.5 and 2.0 times our gross income. Also, not having to pay a monthly rental bill lowers overall monthly bills, which makes it easier to cut back on spending in hard times (once the mortage is paid off, that is).

Looking forward to seeing numbers on this topic!
__________________

__________________
TickTock Rule Of Finance - heavily discount any promises of money/benefits to be paid to you in the future

"I've traded love for pennies, sold my soul for less" -Jim Croce, Age
TickTock is offline   Reply With Quote
Old 01-28-2008, 08:49 PM   #3
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
My spouse and I are retired and we own a four unit building and live in one of the apartments. There is no mortgage on the building. We tried to sell the building last summer but had two sales fall through. We are debating whether to list it again this spring. Because it is both income property and a place to live, it has figured into our financial planning at least to some extent. By far, the best use of the property is our current use.

If we sell we likely would replace the property with a single family home. Therefore, I don't include the property when trying to calculate survivability of our portfolio. However, I believe net worth mean net worth: the value of all your assets less liabilities. So I include non-income generating assets if I care to add up our net worth.

In our part of the country, it is a close call as to whether to rent or buy. I do like the emotional aspect of owning. I am one who likes to "nest" and make a place my own with my own decorating, etc. That has value to me. I also like the perceived security of owning the dirt I live on. Maybe because I was raised by depression parents who grew up on farms.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Old 01-28-2008, 08:50 PM   #4
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
Own
Mortgage, but trying to pay off asap
No - don't count as net worth
Yes - do count as backup safety plan if I missed anything with regular FIRE plan or in case of a black swan

I do expect the after I reach FIRE, that not having a mortgage will give me more options with respect to taking taxable income from IRAs and possibly converting to Roth over years.
__________________
growing_older is online now   Reply With Quote
Old 01-28-2008, 08:50 PM   #5
Full time employment: Posting here.
hankster's Avatar
 
Join Date: Jan 2008
Posts: 645
1. Own
2. $103k mortgage on property worth $160k
3. Yes
4. We're planning to sell soon and build a home geared toward retirement living.
For us, owning a home is important in ways that go beyond strictly financial
cost-benefit considerations.
__________________
hankster is offline   Reply With Quote
Old 01-28-2008, 08:52 PM   #6
Thinks s/he gets paid by the post
DangerMouse's Avatar
 
Join Date: Jan 2007
Location: Silicon Valley
Posts: 1,812
Quote:
Originally Posted by Martha View Post
Any one like to speak to the issue of rent vs. buy?
I'll bite because this is something I have done the numbers on. I would qualify that the following is based on our personal situation. Whenever I have run the numbers, due to the cost of housing vs the cost of renting it does not make sense to buy. However, being Australian and likely living in Australia in the future, I have to remind you that we do not get a tax deduction for mortgage interest.

For us the true advantage of buying would come once we were 65. Pensions are means-tested in Australia, it has nothing to do with how much you put in. So based on our current portfolio, with 20 years to go, it is unlikely we will qualify for a pension. However, when we were 65 we could buy a house using all our investments, leaving a balance of $300,000 and we would qualify for a full pension. We could also then take out a reverse mortgage to supplement our income if needed. As we don't have any children this strategy would work for our situation.

That said, we are likely going to buy a house in the near future. Even though financially it does not make sense, on an emotional level it is something we want to do. Also we have a hankering to do a renovation project once we have fired. Think that may be due to too many hours watching HGTV. Part of the need to do the renovation and making a place ours is probably due to the fact that we have moved 9 times, living in 4 different countries in the last 14 years.
__________________

I be a girl, he's a boy. Think I maybe FIRED since July 08. Mid 40s, no kidlets. Actually am totally clueless as to what is going on with DH.
DangerMouse is offline   Reply With Quote
Old 01-28-2008, 08:52 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
1) Do you rent or own?

Own. Looking to sell and then rent. Renting is for flexability in my life... I've got a farm to buy and I need to move.

2) If you own, have you paid off your mortgage?

Heck no.

3) Do you count your home into your net worth equation?

Heck no.

4) Does your home figure into your financial plans during retirement?

Current house does not. The farm does in the sense that I plan on a smaller food budget for fresh produce.
__________________
Marquette is offline   Reply With Quote
Old 01-28-2008, 08:53 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
1. Own
2. No
3. By definition, yes. But I don't include it in my "retirement account".
4. Not in any special sense.

I was going to point out that Intercst also contends that renting beats purchasing, but all I see over at REHP is Hocobabble...

I intend to stay where I am for the foreseeable future. I like the freedom and the peace and quiet. Plus I like having a garage.

However, every time I have to climb up to the roof, or crawl around through the insulation in the attic, or when I'm perched precariously on a step ladder, with hedge trimmer in hand, trying to get to that unreachable spot on the top of the holly topiary, I wonder how many more years I'm going to want to, or be able to, do that kind of stuff...

As for the math, for shorter periods of, say, a few years, I don't believe inflation would have much effect, so the calculation would be a fairly straightforward, apples-to-apples comparison.
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 01-28-2008, 08:54 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by TickTock View Post
Links?

Housing: Rent vs. Buy
http://www.early-retirement.org/foru...light=rent+buy
http://www.early-retirement.org/foru...light=rent+buy
http://www.early-retirement.org/foru...light=rent+buy
http://www.early-retirement.org/foru...light=rent+buy

And about 10 more.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 01-28-2008, 08:57 PM   #10
Thinks s/he gets paid by the post
DangerMouse's Avatar
 
Join Date: Jan 2007
Location: Silicon Valley
Posts: 1,812
We are renters and have been for years.
__________________

I be a girl, he's a boy. Think I maybe FIRED since July 08. Mid 40s, no kidlets. Actually am totally clueless as to what is going on with DH.
DangerMouse is offline   Reply With Quote
Old 01-28-2008, 08:57 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
1. own
2. 30 yr fixed (20% down)
3. No no NO!! - carry it on the expenses side of the ledger.
4. Never - not even scrap value.

heh heh heh - We did own a duplex on the way to ER for 15 years(New Orleans) - made money not a lot but did discover I am NOT a landlord type - my hat is off to those that are - since I knew a couple successful ones. My BIL a mining engineer lost money on the two houses they bought in thirty years - They rent mostly, move a lot, live in strange places - mining being what it is.

Again beware the personal experience of one - I'm a big fan of renting - unless one can afford the frivolous expenses of owning. I paid 21k for a 1200 sq ft fish camp in 79 and 85k for 1100 sq ft in 2005 post Katrina in high cost Missouri - waaay too much for just shelter.

Plus I am jealous of California real estate - have been on and off for thirty years.
__________________
unclemick is offline   Reply With Quote
Old 01-28-2008, 09:05 PM   #12
gone traveling
 
Join Date: May 2006
Posts: 1,036
Quote:
Originally Posted by DangerMouse View Post
I would qualify that the following is based on our personal situation. Whenever I have run the numbers, due to the cost of housing vs the cost of renting it does not make sense to buy.
DangerMouse
What appreciation rate did you use and how did you arrive at that number? I believe that is where most people make an error when running the numbers. Thanks
__________________
honobob is offline   Reply With Quote
Old 01-28-2008, 09:10 PM   #13
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 463
cute fuzzy bunny,

Many thanks! Reading...
__________________
TickTock Rule Of Finance - heavily discount any promises of money/benefits to be paid to you in the future

"I've traded love for pennies, sold my soul for less" -Jim Croce, Age
TickTock is offline   Reply With Quote
Rent VS Own
Old 01-28-2008, 09:13 PM   #14
Full time employment: Posting here.
 
Join Date: Jul 2007
Location: ST LOUIS
Posts: 994
Rent VS Own

We own in the midwest it is cheaper. We found the cheaper homes are cheaper than rent and do not tie up so much money. Homes in the midwest go up very slow our's took about 19 years to double. So the less you put in them the better. The stock market runs circles around homes in the midwest.
__________________
rec7 is offline   Reply With Quote
Old 01-28-2008, 09:15 PM   #15
Dryer sheet aficionado
 
Join Date: Jan 2008
Posts: 45
1) Do you rent or own?

Rent. We were homeowners from 1987 to 2003. Now we rent a nice 4 bdrm, 3 full bath, 2 car garage home with a beautiful big yard and a covered patio. It's located in a very nice family neighborhood and is situated across from a huge park with two lakes. We pay $1295 per month in rent and $9/mo. renter's insurance. All repairs, seasonal maintenance, etc. are done promptly by the property mngmt company.

2) If you own, have you paid off your mortgage? N/A

3) Do you count your home into your net worth equation? N/A

4) Does your home figure into your financial plans during retirement?

N/A (Although our last owned home did. We sold it with the intent to downsize our lifestyle, rent, and invest our equity and monthly savings. This helped us reach FIRE.)
__________________
MillionaireMommyNextDoor is offline   Reply With Quote
Old 01-28-2008, 09:17 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,189
1. own
2. mortgage on one home I'm selling this year, no mortgage on my long-term home
3. kind of, I consider the equity I'm about to get on the this year's sale part of my net worth even though I don't currently have it in my spreadsheet. Not the permanent one.
4. Only as a final emergency plan, figuring that I can downsize if my plan isn't working, and will see that coming so I don't have to make a quick sale.

One thing I like about renting is that I don't have an owner that could sell the house from under me, forcing me to move once a lease is up. The tradeoff is that I'm a lot more locked in if the neighborhood goes bad or I have some other reason that I really want to move.

I did a rent vs. buy study 5 years ago when I bought the house I've planned all along to sell this year. It came out in favor of buy even for this short term. I looked at my assumptions and I had a more conservative 5% return on investments. My Vanguard profile says my allocation gets 9.8% historically so I think the 10% number you use is not unreasonable. I plugged in 10% into my rent vs. buy spreadsheet and it still comes out that "buy" is better. And since I only put 20% down, I've invested the other 80%, so really I'd need to go back and change my spreadsheet to account for just 20% of my house price getting a 10% return that I don't have tied up in the house. So in the Austin TX area, buying was better, by a pretty good margin.

I went through a similar exercise in Cary, NC in the early 90s. I don't have the numbers from that but also came up with a "buy" decision.
__________________
RunningBum is offline   Reply With Quote
Old 01-28-2008, 09:30 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Quote:
Originally Posted by rec7 View Post
We own in the midwest it is cheaper. We found the cheaper homes are cheaper than rent and do not tie up so much money. Homes in the midwest go up very slow our's took about 19 years to double. So the less you put in them the better. The stock market runs circles around homes in the midwest.
Again beware a data point of one - but down at the 'old dougnut shop' - retired Business Prof - 1100 sq ft apartment older building good neighborhood - $450 plus utilities(electric/gas) vs me $512 mortgage/taxes/insurance for 1100 sq ft house in the same neighborhood - north of Kansas City.

It will vary by size neighborhood and location but generally the above quote holds true here.

Looks like the spread between rent and buy is way more in the former 'hot RE markets'.

heh heh heh
__________________
unclemick is offline   Reply With Quote
Old 01-28-2008, 09:38 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Dec 2007
Posts: 4,764
"Looks like the spread between rent and buy is way more in the former 'hot RE markets"

Seems to be that way.
__________________
Notmuchlonger is offline   Reply With Quote
Old 01-28-2008, 09:39 PM   #19
Recycles dryer sheets
 
Join Date: Jul 2007
Posts: 192
1) I own my house
2) Yes, I own it outright, paid off eight years ago
3) Yes, part of my NW
4) Yes, plan to sell and downsize

I rented for 20 years, I never liked having to answer to a decent landlord, or having to live with the uncertainty of seeing my rental sold to a miserable landlord... Owning my house is a personal thing, it reduces stress.
__________________

NotSoonEnough is offline   Reply With Quote
Old 01-28-2008, 09:39 PM   #20
Full time employment: Posting here.
 
Join Date: Jul 2007
Location: ST LOUIS
Posts: 994
But remember you are locked in at $512 his rent in 30 years will not be $450. In fact he might pass you in (I am guessing) 5 years.

Quote:
Originally Posted by unclemick View Post
Again beware a data point of one - but down at the 'old dougnut shop' - retired Business Prof - 1100 sq ft apartment older building good neighborhood - $450 plus utilities(electric/gas) vs me $512 mortgage/taxes/insurance for 1100 sq ft house in the same neighborhood - north of Kansas City.

It will vary by size neighborhood and location but generally the above quote holds true here.

Looks like the spread between rent and buy is way more in the former 'hot RE markets'.

heh heh heh
__________________

__________________
rec7 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Scot Burns and the rent versus buy whitestick FIRE and Money 39 06-29-2007 12:12 PM
Elderly Parents - Rent vs. Buy Da Nag FIRE and Money 18 02-14-2007 01:42 PM
Housing: Own versus Rent Sam FIRE and Money 53 10-31-2006 07:32 PM
help for my brother, buy vs rent Bimmerbill Young Dreamers 33 04-20-2006 03:43 AM
Housing: Rent vs. Buy BigMoneyJim Young Dreamers 45 01-19-2005 01:54 AM

 

 
All times are GMT -6. The time now is 05:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.