Scot Burns and the rent versus buy

[whitestick]

http://assetbuilder.com:9669/blogs/s...an-owning.aspx
Not to open up old discussions but, seems like Scott is opening up to the investing side of the discussion.

[chinaco]

I have been thinking about it.

[W2R]

But what about increasing prices of houses and rent? Sure, we have hit a blip in the housing market but I don't expect that to last forever.

I could easily rent an apartment with the income I would get by selling my house and putting the money into CD's. What about 10 years from now, when rents and sales prices for homes might be twice as high? I would be stuck up the proverbial river without a paddle.

Otherwise, I would do it. I like the flexibility. If I started to dislike a location or my neighbors, I could just pick up and move with a lot of ease. I do plan to rent for a year or so in any new retirement location, before buying.

[unclemick]

made you do it.

I've always favored rent ala Bear Bryant's agile, mobile and hostile.

And always bought!

Chickenheartedness I guess.

Like buying the beater car thaat makes your numbers look pretty vs the hot rod your heart lusts after.

heh heh heh heh

[kcowan]

We sold in 1997 and put the equity into the market. Our rent has increased 1.95% per year since then. Needless to say, it has been an excellent financial choice. In fact, it enabled us to RE and eventually FI 2 years later.

You should not compare to returns from CDs because real estate is an equity market subject to ups and downs. Inflation helps a real estate holding but not a fixed CD or bond.

Ultimately home ownership is a lifestyle choice. It is also a good inflation hedge in the long term. It can be a forced savings plan and a handy source of financial leverage.

For me, my forced saving and leverage days are over.

[Nords]

Quote:

Originally Posted by kcowan You should not compare to returns from CDs because real estate is an equity market subject to ups and downs. Inflation helps a real estate holding but not a fixed CD or bond.

I'm not sure real estate would benefit from a comparison to TIPS or I bonds, either.

Maybe to something that's highly illiquid with wide spreads, 6% transaction costs, and variable-interest margin loans... oh, wait, nobody would want to invest in one of those either!

[Alan]

Quote:

Originally Posted by kcowan We sold in 1997 and put the equity into the market. Our rent has increased 1.95% per year since then. Needless to say, it has been an excellent financial choice. In fact, it enabled us to RE and eventually FI 2 years later. You should not compare to returns from CDs because real estate is an equity market subject to ups and downs. Inflation helps a real estate holding but not a fixed CD or bond. Ultimately home ownership is a lifestyle choice. It is also a good inflation hedge in the long term. It can be a forced savings plan and a handy source of financial leverage. For me, my forced saving and leverage days are over.

We are in the same position. We never regretted owning houses but as we close in on RE we want flexibility as we plan to spend months at time living in England and Australia. We decided to try renting when a company move came up 3 years ago. We sold the house and put the money in a Wellesley account. Personal ROI according to VG site as of May 31st is 9.1%. Rent has actaully gone down 0.7% since we moved 3 years ago due to lots of new apartments being built in the area. I expect this will change but so far we are very pleased and find that renting really suits our lifestyle these days.

[halcyon7886]

Quote:

Originally Posted by kcowan Our rent has increased 1.95% per year since then.

Long time reader, first time poster.

It looks like rental stability is very much a local phenom.

I live in the Seattle area and I would love to have increases of less then 2% a year in rent. This year it was more like 10%. They originally only offered a 5 month lease and when I said I wanted a year they increased the monthly and would not go any longer then an 11 month lease no matter what.

From todays Seattle Times, a few in the city are seeing much larger increases.

Local News | Rents soar through the roofs | Seattle Times Newspaper

[cute fuzzy bunny]

The rent vs buy argument needs to be evaluated in terms of decades, not a 5 or 10 year snapshot.

My first apartment rented for $265. 28 years later its renting fo $1265.

Slightly outpacing inflation...

And is it just me or does scott burns seem to regularly publish an article advising one direction, then later publish an article completely inverting his conclusions?

[whitestick]

Quote:

Originally Posted by cute fuzzy bunny And is it just me or does scott burns seem to regularly publish an article advising one direction, then later publish an article completely inverting his conclusions?

Changing perspective? or wisdom with ages?

Quote:

Originally Posted by kcowan For me, my forced saving and leverage days are over.

That's sort of the position that I'm dealing with. Moving from accumulation phase to spending phase, seems to favor the renting, with subsequent reinvesting of equity from house into market, to let it pay the rent.

[cute fuzzy bunny]

Quote:

Originally Posted by whitestick Changing perspective? or wisdom with ages?

Sure, if theres more than a month or two between articles...it was just last month he was positive on homeownership. I think thats closer to ADD than a changing perspective...

[Danny]

For someone retired, with the house paid for - cashing out, putting the proceeds in Cds at 5% and renting is where my head is at. I like freeing up the equity and paying the rent with interest income.

If I was starting out again - I would be saving for a big down payment on a home purchase in about a year or two..when I think the prices will be lower. If you can manage to stay put for a long time I still think owning a house when you are young is a good strategy.

If you do sell, just don't do what Albert Brooks did and buy an RV and head for Vegas...

[haha]

Quote:

Originally Posted by DanTien For someone retired, with the house paid for - cashing out, putting the proceeds in Cds at 5% and renting is where my head is at. I like freeing up the equity and paying the rent with interest income.

This is definitely an emotionally appealing approach. But I'm not sure how well it works, unless housing is very overpriced relative to rents.

First, in most good areas rents increase a bit faster than CPI inflation, most of the time. So you really need to look at your real, after tax return on your CD. Which may be close to nil.

If you play the SWR game and assume a 4% real return, and purchase prices are high, then it should work out. But you have exchanged a near certainty- what your housing will cost if you own it- for a market speculation.

This speculation has certainly tended to work out well enough in many areas for a long time.

Of course if housing markets really do tank, it won't matter that you have gotten 0-1% real return on your sales price, because you can re-enter at a lower price. But in many places that fervently hoped for event has shown no sign of taking place.

Ha

[cute fuzzy bunny]

So the big secret is to buy homes in nice appreciating areas, and rent in not quite as nice areas where theres not a lot of real estate appreciation driving the rents?

[Texas Proud]

To me it is just like any other purchase.... but I know that is now what Scott said earlier....

Here in Houston, housing prices are up a lot IMO, but STILL way below what I read about from many of you on this board... I can say it is cheaper to buy a house (and nice house) in an established neighborhood for $125K to $150K than to rent that same property...

There is a relationship between the prices of each and both will help drive the other (usually)...

[kcowan]

Quote:

Originally Posted by cute fuzzy bunny So the big secret is to buy homes in nice appreciating areas, and rent in not quite as nice areas where theres not a lot of real estate appreciation driving the rents?

That might be a good general rule, but in our neighborhood, it is rent in an older building where the rents were set on a much lower cost base because real estate prices are still bubbling here after 10 years. There is also a good rental inventory as well so increases are limited by vacancy rates. The emotional fervor of the mania to purchase regardless of economics has also helped keep vacancy rates up.

Just like any other purchase, each of the choices requires due diligence. YMMV

(...but going against the herd often pays off.)

[Alan]

Quote:

Originally Posted by cute fuzzy bunny So the big secret is to buy homes in nice appreciating areas, and rent in not quite as nice areas where theres not a lot of real estate appreciation driving the rents?

Not necessarily. The place we live is The Woodlands just north of Houston where house prices are appreciating very nicely I'm sure like the rest of Houston. Texas Proud will know it I'm sure, a very desirable place with very high property taxes to match and a great many McMansions. I never said I was renting because it is better value than buying, I said was renting because I want flexibility and that because that a lot of people want to rent here there is an increasing supply of luxury apartments and town houeses for rent so the rents have not increased in the last 3 years. New houses also continue to built at a great pace as well.

[cute fuzzy bunny]

Sorry about the confusion Alan, I wasnt directly addressing your post . I probably should have used a little more selective quoting.


I guess I can do a little backflip here and restate my point. If you want to make money, buy a residence in an area with appreciation potential. If you want to save money, rent in an area that isnt likely to see much appreciation (with the attendant rent increases), which usually means a less desirable locale.

[kcowan]

Quote:

Originally Posted by cute fuzzy bunny If you want to make money, buy a residence in an area with appreciation potential. If you want to save money, rent in an area that isnt likely to see much appreciation (with the attendant rent increases), which usually means a less desirable locale.

To quote the CFB strategy, buy an underpriced house that needs some TLC (possibly to be DIY'd)...

To quote KC, rent where vacancy rates are likely to remain high. Vacancy rates can be high because:
1) People keep moving out to buy homes
2) People are leaving the area
3) New rentals are coming into the market.
Both 1 & 3 can be in very desirable areas. 3 can also be caused by real estate speculators buying homes/condos and renting them out.

[free4now]

Another advantage of renting for those who have time on their hands is the ability to seek out and take advantage of great rental deals.

I just moved into the The Heritage on Fillmore which is way more luxurious and upscale than I would have ever imagined for myself. I got a great deal on the rent from a condo owner whose plans had changed and needed to rent the place out on short notice. I was chosen out of many applicants because as a former homeowner I had shown myself to be able to keep a place neat, because my financial statements showed I wouldn't have trouble coming up with the rent, and because I could sign the lease and move in immediately.

I had spent approx 100 hours combing craigslist and visiting rentals before finding this deal, something that most working stiffs couldn't afford to do.