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Rent or Buy
Old 09-04-2015, 10:47 AM   #1
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Rent or Buy

I am planning to move to another state(Colorado) as a recent retiree. I realized that real estate has gone so high, and afraid it may be impractical to buy a house. I'm worried about the market and economy as a whole. I thought of renting first. Wait for my old house to sell, then consider buying a cheaper house or condo.
Are there folks here who rent forever?
If I stay in CO for only 5 years, will renting be advantageous?
If I stay in CO for 10 years?
BTW I intend to pay cash for a H or C if possible using equity from sale my old house+some savings. I'm adversed to debt.
I've done some calc. on this and there are some unknowns such as market risk, inflation, rate of appreciation etc. I felt the mortgage calcs, may be slightly bias toward buying a house?
Any thoughts.?
Thanks.
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Old 09-04-2015, 11:13 AM   #2
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I am planning to move to another state(Colorado) as a recent retiree. I realized that real estate has gone so high, and afraid it may be impractical to buy a house. [...]Any thoughts.?
Thanks.
Just that all real estate is local. There are some locations in the country in which renting is advisable, and some in which buying is much more practical. People tend to think that real estate conditions in their own location can be widely generalized but that is insanely short sighted, IMO.

So, I'd suggest moving to Colorado and renting until you get "the lay of the land" and figure out how practical or impractical it may be to buy, there.
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Old 09-04-2015, 12:50 PM   #3
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It will be 100% better to rent. At least for the short run.

Real estate prices will come down if interest rates rise, or if deflation continues. Renting will be more flexible, and you will have less to buy. Or sell, if CO turns out to be not what you think it will be.

House prices are a function of wages. With wages falling, house prices will continue to fall.
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Old 09-04-2015, 01:28 PM   #4
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Are there folks here who rent forever?
So far, me.

Renting vs. buying is not an easy call.

I find this post from jcollinsnh a good starting point:
Rent v. Owning Your Home, opportunity cost and running some numbers

Housing market out here is silly, so renting is better. Has been like that everywhere I lived so far. And there's the emotional factor of an asset that scares me off. But to each his own:
Why your house is a terrible investment
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Old 09-04-2015, 01:36 PM   #5
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The OP's post is also of interest to me. I plan to retire in the next two years and move to Central Oregon where house prices have continued to increase even though the job market is not that good. I had always planned to rent for at least the first year but now rental vacancies are low and rents are high. It is worse if you have a pet, particularly a cat. But if I add up the property taxes and maintenance costs of buying a new home and count on some investment income from the sale of my current home, it is not too bad of a deal to rent for a few years.

I had also thought that prices would fall if interest rates increase and that would be my opportunity to buy. But some are predicting that the increase will cause greater home prices as people rush to buy a home before the rates increase even more. Not sure what to believe.

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Old 09-04-2015, 03:22 PM   #6
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This NYT rent/buy tool seems to be one of the most comprehensive I have seen.

Since 1985, we have always owned. But now that we are retired, and looking to downsize, we are certainly open to renting if it makes sense. We've used the NYT tool to evaluate renting in several different areas we're considering. The results are very mixed... meaning some areas renting is better, some areas owning is better, and some areas it makes no difference.
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Old 09-04-2015, 04:10 PM   #7
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Thanks for answers. A few more facts reg. me.
1. I will also start receiving my SSS benefits( amount more than most) and about 1/2 of that can pay for rent almost forever, unless rent unreasonably increase.
2. I want to downsize dramatically and a small condo or medium apt. will do.
3. I want to sell the old house, and instead of buying another house, invest the proceeds into a balance fund. Study showed that the S&P 500 appreciates more than real estate, long term.
4. Just like above, I am astonished why the housing prices is going up that much, despite the average wages, and difficulty to get a job in this area. I asked a realtor how could somebody afford a 300K house when the median family income is only 53K? He had no good answer. Must be the big demand from a close city(Denver).
5. Stock market is on the way down, interest rate going up and there is a looming worldwide "deflationary" environment. I believe in buying low, not high in everything. Housing bubble?
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Old 09-04-2015, 04:37 PM   #8
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We looked at Denver and ended up going to Raleigh NC instead. The whole rental and buying market is so crazy in Denver right now, I'm not really sure what the answer is. We looked at rentals that were $2k+ which only a few years earlier were $1200-1400. I was told this is because there is very limited entry level housing available due to the fact there was some new liability laws passed there making most developers refuse to build condos/townhomes. Your guess is as good as mine about when/if that gets fix. Our feeling was that if that resolved there would be a flood of housing built which would soften the market and rents would plummet also.. which would make me more lean towards renting..maybe further out, we found cheaper on the north west side.

Right now buying even up in Boulder is just a buying frenzy, almost all multi-bid situations.. I don't personally like to buy that way as I feel you are really never getting a good deal and will overpay.

There is a MASS influx of people moving to Denver area.. specifically I came from Chicago area in February and all the moving companies noted that over 50% of the moves they were doing were Denver bound. There was must jobs or something driving that and so then your talking people who already have cash likely from home in the $300-500k range, thus making $300k house seem a "steal."

Anyway that is what we found when we looked and we just decided to rent in NC for a few years and wait and see what happens there.. else we will move to Colorado Springs and buy there where they don't seem to be having the same issues.
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Old 09-04-2015, 06:58 PM   #9
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Colorado has been a boom and bust state in housing for many years. Long ago it followed the oil industry pretty closely. In recent years it seems more the economy in general. DD lives in the Denver area and rent has been going up a lot. You will probably find prices increasing along the whole front range from Colorado Springs to Ft Collins and all areas within commuting distance of that area. A lot of new people move to the mountains and a year or two later move down to the city or out of state. The winters range from mild to brutal. I think renting if you are thinking of the mountains would be a good thing.
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Old 09-04-2015, 09:15 PM   #10
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Thanks again. My desire to move within the front range is due to my love of photography, hiking and the outdoors. I did not anticipate the fast rise of housing prices. I am originally planning to buy in Loveland or south Fort Collins, but postpone it for 2 years. Now it has become very competitive. By the time I arrive there, a house is already sold.
Now I'm looking into Greeley, to rent, and to drive to L/FC for the photography clubs and hiking and other activities. I'm leery of the cow smell(feed lots).Unless there is a housing bust, I'm more inclined to rent for a few years and get Colorado out of my system, then when I'm older will move closer to my kids in Omaha.
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Old 09-04-2015, 09:40 PM   #11
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Thanks again. My desire to move within the front range is due to my love of photography, hiking and the outdoors. I did not anticipate the fast rise of housing prices. I am originally planning to buy in Loveland or south Fort Collins, but postpone it for 2 years. Now it has become very competitive. By the time I arrive there, a house is already sold.
Now I'm looking into Greeley, to rent, and to drive to L/FC for the photography clubs and hiking and other activities. I'm leery of the cow smell(feed lots).Unless there is a housing bust, I'm more inclined to rent for a few years and get Colorado out of my system, then when I'm older will move closer to my kids in Omaha.
You might want to check out Canyon City. Nice smaller town at the edge of some great mountain country. An hour or so from Colorado Springs.
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Old 09-04-2015, 09:50 PM   #12
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The OP's post is also of interest to me. I plan to retire in the next two years and move to Central Oregon where house prices have continued to increase even though the job market is not that good. I had always planned to rent for at least the first year but now rental vacancies are low and rents are high.
I'm a couple of years ahead of you in that plan. We decided a few years back that we wanted to retire to Central Oregon. In 2012 we bought a house there when the real estate market was low (as were interest rates) but starting to recover. We have been renting it out since, which is easy to do as you noted. We will be finally moving next year.

We have been pretty sure about our choice of location. However, part of our thinking was that even if we changed our mind later about the house or location, it would be a good investment as a rental in a recovering market, so we could continue to rent it out, or easily sell it for a profit. (I estimate it's value has gone up 20% so far since our purchase.) This approach may not work as well if you're starting now.
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Old 09-04-2015, 10:22 PM   #13
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Thank you for posting this link. Very enlightening.

A lot of our relatives espouse the value of home ownership and keep telling us we should buy a house but I'm just not seeing it (at least not with real estate prices where I rent). I'm not opposed to buying if total PITI is at most double our current rent (old apt bldg and is insanely cheap compared to others in the area). However, having a 30-year mortgage on a $400-500K house feels like a giant noose around the neck particularly when our combined take-home pay at the time was just $5000/mo. Mind, $400-500K was the price back in 2009 for a tiny 2B/2B SF when house prices fell. Now, the entry is like $600-700K and no, I'm not interested in a 3 to 4-hour daily commute in order to find something more affordable. Given we had recently immigrated back then and were just starting out, we would have lost liquidity making the downpayment, closing costs and other fees so we'd just have to pray we didn't lose our new jobs.

For that matter, who the heck came up with 30-year mortgages? Back in the Philippines, home loans are typically just 10 to 15 years. More often than not, home purchases are even cash transactions or seller financed with balloon payments due in 3-5 years.
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Old 09-05-2015, 12:21 AM   #14
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The advantage of 30 or even 15 year mortgages is you can lock in the rate that you can afford.
Problem in countries that only have typical 5 yr mortgages , is that you are victim to a rising interest issue and could literally be priced out of your home if things ever repeated and interest went back up to 18%. (around 1980)
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Old 09-05-2015, 02:02 AM   #15
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The advantage of 30 or even 15 year mortgages is you can lock in the rate that you can afford.
Problem in countries that only have typical 5 yr mortgages , is that you are victim to a rising interest issue and could literally be priced out of your home if things ever repeated and interest went back up to 18%. (around 1980)
The 10 to 15 year mortgages are fixed rate (although interest is fairly high at 7-8%). Seller financed I mentioned are usually 0% but you do have to be able to come up with the balloon payments so that kinda limits you from buying if you know you won't have ready cash when the balloon payments are due.

Maybe it's just me but I think lengthy mortgages in the US have artificially inflated prices for real estate as instead of considering that a house costs, say, an extra $50,000, others just think, hey, it's just $260 more per month (with 30-year term at 4% interest). That's certainly how the real estate agent put it to us while we were looking.
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Old 09-05-2015, 11:26 PM   #16
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The 10 to 15 year mortgages are fixed rate (although interest is fairly high at 7-8%). Seller financed I mentioned are usually 0% but you do have to be able to come up with the balloon payments so that kinda limits you from buying if you know you won't have ready cash when the balloon payments are due.

Maybe it's just me but I think lengthy mortgages in the US have artificially inflated prices for real estate as instead of considering that a house costs, say, an extra $50,000, others just think, hey, it's just $260 more per month (with 30-year term at 4% interest). That's certainly how the real estate agent put it to us while we were looking.
In Canada a person gets a 5 yr mortgage, then gets to renew it for another 5 years, again and again until it is paid off.
The danger is each time they renew the interest rates are whatever the market is charging.

So I like the 30/15 yr mortgages in the US better.

Probably what pumps up house prices in US is the deduction for mortgage payments. Its like buying yourself a tax deduction.

That does not exist in Canada, so most folks in Canada want to pay off the mortgage as fast as possible.
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Old 09-06-2015, 12:02 AM   #17
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Some recent TV news reports here in the greater Seattle area were about the soaring rent vs. soaring home real estate prices--and seemed to focus on the monthly rent vs. monthly mortgage payment as the primary calculation to suggest that buying might be a better choice than renting. "Owning" a home actually costs in much more, in terms of time and money, than the mortgage itself, right? Taxes, closing costs, insurance, maintenance (roof, lawn, fixing this and that), non-deductible mortgage insurance, etc.
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Old 09-06-2015, 12:13 AM   #18
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Probably what pumps up house prices in US is the deduction for mortgage payments. Its like buying yourself a tax deduction.
Yes, it's a tax deduction--for the interest only, not the principle. Not a dollar-for-dollar tax credit. And only if you itemize on your tax return. But most Americans don't itemize. So go figure.
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Old 09-06-2015, 01:19 AM   #19
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Probably what pumps up house prices in US is the deduction for mortgage payments.
It does at that.

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Its like buying yourself a tax deduction.
Honestly, I'd rather have a $100K house paid for by cash rather than a $500K house with $100K downpayment and a $400K 30-year mortgage at 4% APR with total interest of around $300K just so I can save $75K in taxes at the 25% marginal bracket (less if you consider that standard deductions and exemptions increase, and tax brackets expand every year).
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Old 09-06-2015, 08:31 AM   #20
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One thing not mentioned yet is the effect of owning vs renting on SWR and tax bracket.
If you own your home outright -without a mortgage- you have less money every month, and every year that you have to withdraw from your portfolio. This lowers your SWR and potentially could allow you to substantially lower your taxes.

Think about it:
If your monthly rent or house payment were $1500 that is $18000 a year you have to come up with. If you are taking that from a tax deferred account, you owe income taxes on that so it could cost you anywhere from 10% - 39%+ more once you pay the Feds and local governments their share. And that amount more could kick you into a higher tax bracket such that it means the difference on whether your capital gains and dividends get taxed or not. If you take the money from a non taxed account it is difficult to figure generally. Each situation will depend on so many factors.

So it can be very complicated to "run the numbers."


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