Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Plan to rent or own a home?
Old 06-22-2010, 10:33 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
Plan to rent or own a home?

We bought our home with a 15 mile commute in 1993 when the children were small, then sold in 2007 and moved into town where we now rent a 4-bed house with yard, garage, etc for 1550/month. Comparable homes would sell for 400K easily.

When we FIRE we may or may not move from this place straight away. We like our present home but we will realistically never have the chance to buy it (landlord's childhood home, sentimental value etc) and also it's probably more than we would need, or want to tie up in capital - neither I nor DW are big "ideal home" people.

Now, I'm thinking in general terms about whether we should plan to rent or buy. When we FIRE - hopefully in as little as 2-3 years - I expect that we will have about 3000/mo in pensions and a 4% withdrawal from a 1.2M portfolio, say another 4000/mo. That pretty much matches up with our current expenditure (LBYM: we save 5000/mo and are also putting 1500/mo aside for college, which will end in 2-3 years)

The raw numbers are easy: 1550/mo takes up 4% of 465K from the portfolio. So in theory a house or apartment which costs 250K leaves 215K more in the pot, giving another 715/mo to spend on slippers hearing aids travel and fine dining. We'd need to add something for maintenance, but I'm guessing that that is comparable in magnitude to the ongoing annual increases in the rental amount.

What else should we take into account? Experiences welcome.
__________________

__________________
BigNick 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 06-22-2010, 12:08 PM   #2
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,036
Personally, I plan to own a low-maintenance home in retirement. Aside from the traditional rent vs. own arguments (mobility vs. stability for example), I also try to look at future liabilities when making such choice. If you rent, then you introduce a large inflationary expense in your budget. If you own, maintenance, taxes and insurance are also inflationary, but they tend to represent only a fraction of the rent you would pay.

For example, if we rented our house, we would pay about $1,200 per month (based on neighborhood comps). That's an annual expense of $14,400, fully adjustable for inflation. Owning our house outright, however, costs us about $4,700 a year including property taxes, insurance and maintenance costs. Those costs are also subject to inflation, but since they are much smaller than rent payments, they introduce much less inflationary pressure in our budget (which is good news given that other items in our budgets are highly inflationary and we don't need to add fuel to the fire).

Plus, your 465K capital might become exhausted after 30 years (at 4%), right when you may need to move to an expensive assisted living facility. If you rented for 30 years, you are left with nothing. If you owned, you can always resell or rent the house and free up some capital which will help you defray the costs of the facility (that's what my grand parents did and what my parents plan to do).

Lastly, if you rent and then one day you decide you might want to own, you might find yourself priced out of the market. When you own, you always have the choice to sell, get some capital back and go rent something.
__________________

__________________
FIREd is online now   Reply With Quote
Old 06-22-2010, 12:15 PM   #3
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,846
Quote:
Originally Posted by BigNick View Post
We bought our home with a 15 mile commute in 1993 when the children were small, then sold in 2007 and moved into town where we now rent a 4-bed house with yard, garage, etc for 1550/month. Comparable homes would sell for 400K easily.

When we FIRE we may or may not move from this place straight away. We like our present home but we will realistically never have the chance to buy it (landlord's childhood home, sentimental value etc) and also it's probably more than we would need, or want to tie up in capital - neither I nor DW are big "ideal home" people.

Now, I'm thinking in general terms about whether we should plan to rent or buy. When we FIRE - hopefully in as little as 2-3 years - I expect that we will have about 3000/mo in pensions and a 4% withdrawal from a 1.2M portfolio, say another 4000/mo. That pretty much matches up with our current expenditure (LBYM: we save 5000/mo and are also putting 1500/mo aside for college, which will end in 2-3 years)

The raw numbers are easy: 1550/mo takes up 4% of 465K from the portfolio. So in theory a house or apartment which costs 250K leaves 215K more in the pot, giving another 715/mo to spend on slippers hearing aids travel and fine dining. We'd need to add something for maintenance, but I'm guessing that that is comparable in magnitude to the ongoing annual increases in the rental amount.

What else should we take into account? Experiences welcome.
In 2-3 years when you retire, your housing needs will be different than they are today and you may decide that you want to move. Depending on the housing market at your location, buying a home may entail some serious liquidity constraints - - houses are hardly selling at all in some communities. Moving might be considerably easier if you don't have to sell a house in order to do it.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 06-22-2010, 12:38 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Just a rough ballpark calc from my point of view. You stated $400k houses rent for $1550/mo in your neck of the woods. Don't underestimate the cost of maintenance, taxes and insurance. And HOA dues if applicable. Let's just say 1% for maintenance, 1% for taxes and 0.3% for insurance. This works out to $9200 a year for a $400k house. Or $767 a month. Half of your rent would go to pay the taxes, insurance, and maintenance if you owned free and clear.

But there is the qualitative side to owning a house. And the stability and tax-free status of imputed rental income.
__________________
Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (5, 11, and 12).
FUEGO is offline   Reply With Quote
Old 06-22-2010, 12:58 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
Quote:
Originally Posted by FUEGO View Post
Just a rough ballpark calc from my point of view. You stated $400k houses rent for $1550/mo in your neck of the woods. Don't underestimate the cost of maintenance, taxes and insurance. And HOA dues if applicable. Let's just say 1% for maintenance, 1% for taxes and 0.3% for insurance. This works out to $9200 a year for a $400k house. Or $767 a month. Half of your rent would go to pay the taxes, insurance, and maintenance if you owned free and clear.
Yes - on the one hand 1500/mo is quite a lot of money in absolute terms to be paying in rent in this part of the world; on the other, we know that our landlord is not in this for every penny he could get (the upside of the "sentimental value" aspect of the house). When we moved in, 4 years ago, everything had been refurbished and we are very comfortable.
__________________
BigNick is offline   Reply With Quote
Old 06-23-2010, 03:12 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,714
Send a message via Skype™ to kcowan
Our rental cost $2500/mo in 1997 when we moved in and now it is $3170/mo. So in 13 years, it has increased by $670/mo. So I think we have had an average increase of just over 1.8% a year, although it was actually zero for a few years then really big and now zero again.

That includes power (heating) and water but not telephone, TV and internet. Of course maintenance fees are zero, and they did completely refurbish the place with new floors, cupboards, counters, lighting fixtures, sinks, faucets, plumbing and appliances.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 06-23-2010, 03:22 PM   #7
Recycles dryer sheets
Pete's Avatar
 
Join Date: May 2008
Posts: 350
I've seen a lot of $40K houses in my travels through the midwest this year. My sister in law bought a pretty nice 3br/2ba outside Independance Kansas for $12k. Can't beat buying something like that. All depends on where you want to live.

http://finance.yahoo.com/news/Newhom...63702.html?x=0
__________________

__________________
Pete 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
Is Craigslist the best place to advertise a home for rent? Amethyst Other topics 20 07-17-2009 01:36 AM
Sell or Rent Second Home? Dog FIRE and Money 11 06-28-2007 12:06 PM
Selling Your Home To Rent and RE? MrHopefull Young Dreamers 40 06-25-2007 03:07 PM
Sell her home and rent? HBH FIRE and Money 4 05-21-2006 04:46 PM
Home vs Rent - Expenses Only Whisper9999 FIRE and Money 23 09-09-2004 12:11 PM

 

 
All times are GMT -6. The time now is 05:59 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.