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10-02-2014, 05:59 AM
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#1
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Recycles dryer sheets
Join Date: Sep 2012
Location: in the sticks
Posts: 473
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Rent vs. Own
I always read with interest the discussions regarding rent vs. own (I have a mortgage) and am constantly weighing the issues of flexibility vs. stability as well as the financial impact on budget.
The recent financial news would have me believe that due to high demand from millenials (maybe also Retirees?) rents are seeing significant increases.
Are those of you that rent seeing these types of increases? Is there a pain point that would cause you to consider buying again or is this assumed in your original decision to rent. Do rents ever go down...or do you have to move to obtain the benefit of a market decline in rents?
I like a number of the benefits of renting but wonder if there is more risk (rising rents) than I have previously considered.
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10-02-2014, 06:01 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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This "debate" (and it has often turned into exactly that) has been rehashed many, many times here, much like the "pay off debt or invest with a windfall" question.
You'll find a lot of true believers on both sides, but the truth is that there are a lot of moving parts and it depends on the individual and the situation they are in.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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10-02-2014, 06:09 AM
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#3
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Recycles dryer sheets
Join Date: Sep 2012
Location: in the sticks
Posts: 473
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Most things discussed on these boards have been discussed previously, are you suggesting that we should therefore not ask questions about them in the future even when there appears to be new trends, which is what I am asking about?
Sent from my iPad using Early Retirement Forum
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10-02-2014, 06:15 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by Newventurer
Most things discussed on these boards have been discussed previously, are you suggesting that we should therefore not ask questions about them in the future even when there appears to be new trends, which is what I am asking about?
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Nope, just setting expectations, since that's how this discussion always goes.
If you perform an advanced search looking for the word "rent" using the "titles only" option you will see many threads on this topic, and they usually do wind up going this way.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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10-02-2014, 06:23 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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There are a lot of factors that are not in the picture with renting vs. buying. But from a financial perspective, renting is a better option.
I firmly feel if you want to be FIRE, you should rent and save. Do this at a younger age, and you will be better off.
Here is a pretty solid argument for renting.
Should You Rent or Buy a Home? - No Nonsense Landlord
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
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10-02-2014, 06:30 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,022
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Quote:
Originally Posted by Senator
But from a financial perspective, renting is a better option.
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Except when it isn't.
__________________
Numbers is hard
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10-02-2014, 06:37 AM
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#7
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Recycles dryer sheets
Join Date: Sep 2012
Location: in the sticks
Posts: 473
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Ok, perhaps I could have communicated my interest more clearly. I really am interested in housing trends vs. an individual decision to do one or the other.
Will increase in rents create an inflection point where those that rent decide to re-enter the 'own' market (whIch seems to coincide with an environment of increasing interest rates)?
Basically, will anything save housing?
Sent from my iPad using Early Retirement Forum
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10-02-2014, 06:45 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Posts: 12,660
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In my area, renting is a much better option than it used to be. When I first moved here in 1980, available rentals consisted of roach-filled apartments that deserved to be condemned, and I could hardly wait to get out of them and into my own place. Rents were relatively high because choices were limited. Nowadays, with all the building over the last 30 years and especially since 9/11/01, renters' choices are vast. Our last set of tenants could easily have afforded a house, but chose to rent to save money. Rents do appear to be rising in recent years - but so are renters' expectations.
Amethyst
__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success – to be able to spend your life in your own way.’ Christopher Morley.
Even a blind clock finds an acorn twice a day.
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10-02-2014, 07:00 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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If you maximize the renting experience, by only buying the size of rental you need, when you need it, you are better off.
Then further maximize the experience by living where the commute times are shortest, and taking jobs where the income is maximized, rather than close to where you live, you are better off.
Then, do not get all cluttered with 'stuff', so you can travel lite, you have more money to save.
Of course, if you want to "own a piece of land", owning is better.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
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10-02-2014, 07:02 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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Quote:
Originally Posted by ziggy29
This "debate" (and it has often turned into exactly that) has been rehashed many, many times here, much like the "pay off debt or invest with a windfall" question.
You'll find a lot of true believers on both sides, but the truth is that there are a lot of moving parts and it depends on the individual and the situation they are in.
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One of the difficulties in having this discussion is there are three separate ways to look at the question. Nationally, locally, and personally.
Nationally the Housing affordability index is quite high 158, well above historically levels. (The index means that median family, can qualify for an 80% mortgage that is 1.58 times the price of the median house). Nationally rents hit record levels this month which is also good for buying. On the downside it is not clear that Generation Y have much interest in buying which pushes demand down.
Locally there is a such huge difference between market that makes a discussion hard. I somewhat familiar with four markets, Honolulu, The SF Bay Area, Southern Oregon, and Las Vegas. Eventhough I own my home in Honolulu I think it makes very little sense to buy here. Even after figuring all the tax breaks etc, it is much cheaper to rent than to buy here. In contrast, Vegas is just the opposite despite a 50-75% price increase from depths of the Vegas foreclosure crisis, you can still generally get a mortgage, plus taxes and insurance for less than rent and that isn't considering the tax breaks you, get or the equity you are building up. IMO it makes slightly more sense to rent than own in the Bay Area,and slightly more sense to buy than rent in Southern Oregon.
But ultimately, the personal factors are what is most important. Those in turn can be divided into financial issues (tax rates, how long you intend to stay, expected investment return) and purely psychological reasons, which vary completely.
In many ways it only makes sense to discuss the issue in terms of national outlook, and personal financial decisions, but that never happens...
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10-02-2014, 08:15 AM
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#11
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,501
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Quote:
Originally Posted by Newventurer
Ok, perhaps I could have communicated my interest more clearly. I really am interested in housing trends vs. an individual decision to do one or the other.
Will increase in rents create an inflection point where those that rent decide to re-enter the 'own' market (whIch seems to coincide with an environment of increasing interest rates)?
Basically, will anything save housing?
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Housing seems to be saving itself quite nicely as the housing recovery progresses.
Quote:
The housing recovery has pushed up home prices nearly everywhere. Over the past year, home prices rose in 225 of the 276 cities tracked
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Housing Outlook, 2014-Kiplinger
The above quote was early in 2014, but here's one from August, 2014:
Quote:
The realtor. com August National Housing Trend Report shows the housing market slowly improving with strong prices, limited inventory and steady demand.
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Real Estate Market Data and Statistics from realtor.com - realtor.com®
Maybe a newly invigorated job market and employment situation might spur faster housing recovery. My possibly erroneous perception is that a lot of younger people are not inclined to buy, because they may have to move to find a new job if they get laid off.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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10-02-2014, 04:17 PM
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#12
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Full time employment: Posting here.
Join Date: Dec 2006
Posts: 881
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Own. Do not rent. When you are retired, it's to late to go back and try
and own. (cost of living, inflation, less job/income security as you age).
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10-02-2014, 04:30 PM
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#13
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Moderator
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 25,346
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Quote:
Originally Posted by Newventurer
Basically, will anything save housing?
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I just ordered one of these and will let you know in a few days.
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When I was a kid I wanted to be older. This is not what I expected.
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10-02-2014, 04:30 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,375
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DD is facing this issue right now as she is changing jobs and may rent for a while rather than buy. (She currently owns in a different city too far from her new job).
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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10-02-2014, 04:43 PM
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#15
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gone traveling
Join Date: Sep 2013
Posts: 1,248
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In a big picture it makes nor difference if you own or rent provided you own/rent modest place.
Real estate is not big part of NW for people who want/can FIRE.
But owning means you put roots down and become part of community and I like THAT.
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10-02-2014, 04:46 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,807
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Renting does not preclude you from being part of the community. You just have to engage.
__________________
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10-02-2014, 04:51 PM
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#17
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gone traveling
Join Date: Sep 2013
Posts: 1,248
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Quote:
Originally Posted by steelyman
Renting does not preclude you from being part of the community. You just have to engage.
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You are right. Though I somehow have different feel for 2 places where I own versus 10 plus places where I lived in my life.
I can not put a finger on it.
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10-02-2014, 04:58 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,992
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For me, I have found the right balance of financial upside/flexibility is to "own where you rent and rent where you live". But I always zig when others zag.
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10-02-2014, 06:45 PM
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#19
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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I enjoy being a renter very much. At this point in our lives, flexibility is highly valuable. Our rent increases every year and, since it represents more than half of our expenses, that is always a concern. Our personal rate of inflation has gone up quite a bit compared to our homeownership days. But we made sure to rent a place that we could easily afford and the rent is still far from being an unbearable financial hardship.
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10-02-2014, 07:18 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 3,024
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I've been analyzing whether we should rent or buy when it comes time to downsize. I've got a fairly comprehensive spreadsheet that yields results quite similar to the NYT Calculator (without quite so many variables). Rents in our target area currently average 62 cents per square foot per month, vs purchase price of around $100/sf. At that rate, renting is clearly cheaper using either calculator.
BUT... so much depends on the assumed investment rate of return. I think the historical average for a 60/40 portfolio is 8.9%. Using that figure, rents would have to increase 24% to 77 cents just to reach the inflection point that the OP asked about. But at a more moderate 7% assumption, rents would only need to increase 3% to 64 cents to change the conclusion. At 6.7% and below, the models favor buying over renting. I've also used FIRECalc and ******** to model success rates on the rental option, which come out at a relatively high 74% using my 62 cent rental rate against a 60/40 portfolio equal to the purchase price.
Ignoring all the non-financial reasons why one might prefer to rent vs buy (DW and I are still debating some of those), I think the financial answer for us is to buy. The reason is the same as why we paid off the mortgage, and elected the annuity option on our pensions instead of lump sum. These actions reduce risk and uncertainty in retirement. Yes, you forego some upside potential if the market performs as well as it has historically. But for us, it's more important to know that we don't need to rely on market performance to make the mortgage payment, or to pay the rent, or to generate the annuity payment we could have had. We just take those items off the table entirely, and work with a smaller budget, smaller portfolio, and more guaranteed income.
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
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