Rent vs. Own

[Lakedog]

According to ********, $14K invested in 1964, in a 70/30 portfolio, would be worth $989K in 2014. That difference (vs $215K home value) would have paid all the rent and then some. No monthly payment does not equal "free."

That's a lot of assumptions (aggressive portfolio, that all funds would be invested for 50 years, etc). You can look back and pick scenarios that would show either course (renting or owning) might have come out ahead. Rent cost over 50 years is not a small sum and could have even been more than $989k depending on location.

This topic is similar to the often discussed "whether to have a mortgage or not" and depends on ones specific situation. I owned for years and now plan to rent for a few years to be more mobile so in my view both renting and owning are viable options (based on your priorities).

 

[Cobra9777]

...Rent cost over 50 years is not a small sum and could have even been more than $989k depending on location...

In 1965, my parents bought a house for $13K, which is very similar to the scenario mentioned by zedd. We had been renting a nearly-identical house in the same town for $100/mo. My brother still owns the house and he rents it today for $1300/mo. That rent increase averages 5.3% per year, which is very similar to the home value numbers quoted by zedd. Assuming a constant 5.3% increase per year, gross rent over 50 years would have been $289K. AND, that figure includes 50 years worth of property tax, maintenance, and insurance, which would have been on top of the $989K (opportunity cost of capital). I highly doubt that any house worth $14K in 1964 and $215K today would have demanded $1M in gross rent.

I agree that rent vs buy is complicated and very situation-specific. We certainly do not know enough facts in the case zedd mentioned to reach a conclusion. And often, it's the non-financial factors that weigh heavier in the decision. I just wanted to point out that owning a house outright with no payment is not "free."

 

[Animorph]

Well, they did get something of value or they wouldn't have done it. They had the freedom to move anytime they wanted. They had the freedom to not have to think about setting aside cash for maintenance expenses on the house or worrying if the next roof would cost $8k or $18k. They didn't have to think about property values or property taxes.

While I have always owned a house as soon as I could, not having rented an apartment since 1979, there are valid reasons to rent instead of own. It's just that so far none of them has applied to me.

Seems like a renter is just paying someone to do all that stuff for them, and take the risk, and pay for a perpetual mortgage. DIY as an owner should be a little more thrifty, all other things being equal. Of course the rental market may deliver bargains (or not) also. And either may be somewhat limited in choosing a location.

 

[mpeirce]

There is also another group to consider.

These are the folks who will never be in this forum. People who don't really save a lot for whatever reason. But if they buy a house and pay it off in 30 years - and resist the temptation to refinance to tap into their equity - these folks will end up with a tidy nest egg that they very well wouldn't have otherwise.

I know my in-laws fall into this category. They have a very modest savings (strictly in a bank account as they are children of the depression), no "investments", and an OK pension that gets them by in retirement (no jackpot, but reasonable).

But they have a paid off house.