Renting vs Buying

[denefi]

Hey all,


As a 28 year old single guy working in Boston, I opt to rent a studio ($1300) in a fun area with an easy commute, and where I can live car free. I could probably find a room in a shared apartment in the area for about $500 cheaper per month, but I work hard and am an introvert and need a place of my own to unwind. I was wondering if any others opt to rent and aren't overly concerned with finding a place to buy. Boston's expensive and I'm well priced out of all areas where I'd want to live at this stage in my life, at least with respect to buying.

A paid off home seems in line with the FIRE mentality. Anyone else decide to rent in an area they enjoy instead? Perhaps this is the 'live in the moment' piece that balances 'plan for the future'.

Cheers,

D

 

[Richard4444]

Based only upon your given info, a 28 y o hard worker who can live car free in a fun city as opposed to sharing space to save $500 monthly, at your age opting to enjoy your quality of life a bit more by living alone (which seems to be your choice) is certainly a fine idea. You do not mention your investments, income, savings, etc., but FIRE is about the quality of life, not just quitting one or two years earlier. YMMV

 

[Meadbh]

I didn't buy my first home till I was almost 34. Prior to that, I moved a lot, as young people often do. I enjoyed renting some great and some quirky places. Like you I needed my own space, although I did rent with friends twice. When I did eventually buy my own home, my goal was to stay at least 5 years (I stayed 20). The transaction costs of buying and selling homes are significant and you need to spend at least a few years in a home to get those back. I do believe that owning a home helped me to decide to stay in the area longer than I would otherwise have done. Renting is a perfectly logical thing to do at this stage in your life, especially in Boston.

 

[pb4uski]

While I have owned my own home for most of my adult life (since my late 20's) from an investment perspective I think home ownership is overrated. I've own homes only because I needed a place to live and intended to live in an area for an extended period, not necessarily because I though they were a good investment (one was a good investment because of dumb luck, the other less so).

From a FI perspective, I think what you are doing (renting in fun area, easy commute, no need for a car) is fine as long as a good portion of the the difference between that and owing a house is being saved and invested rather than partied away.

 

[Major Tom]

There are quite a few retired members here who rent. So many people like the idea of having a fully paid-off home before they retire, that I can see how it could become a type of common wisdom in the minds of ER hopefuls.

I owned a house that I lived in for 4 1/2 years. I sold it and bought 3 rental houses, then sold them too. I now live in a rental and plan to continue doing so unless an opportunity to own comes along that is financially very attractive.

I would definitely consider owning an RV though.......

 

[savory]

I'm dealing with the same issue in retirement. I am now renting. When I look back at my home ownership which has been various homes over 30 years, I think I have broke even or made a little money. But, I am really not sure if I am deceiving myself. I was able to build a cash reserve which was nice.

I have been looking at rent vs. buy calculators that have been helpful. I do not have a favorite one but you can take a look online to find one that might work for you. There are some that appear to be fairly sophisticated.

 

[obgyn65]

Same here. i bought my condo when I was 43. I agree with Meadbh - there is no rush buying at your age.

I didn't buy my first home till I was almost 34. Prior to that, I moved a lot, as young people often do. I enjoyed renting some great and some quirky places. Like you I needed my own space, although I did rent with friends twice. When I did eventually buy my own home, my goal was to stay at least 5 years (I stayed 20). The transaction costs of buying and selling homes are significant and you need to spend at least a few years in a home to get those back. I do believe that owning a home helped me to decide to stay in the area longer than I would otherwise have done. Renting is a perfectly logical thing to do at this stage in your life, especially in Boston.

 

[ShortInSeattle]

I had a friend who felt he "should" buy a home, did so, and ended up selling it 2 years later because the payments had become a millstone around his neck.

No rush, no one right way, and your current situation sounds great. Live happy and free.

SIS

 

[fishnfool]

Being car free would be awesome! I think you're doing the right thing staying solo. You'll know when its time to buy. I waited until I was 39. Play it right and buy after the next housing bubble pops. Only bad thing is, right now rents are rising!

 

[haha]

Play it right and buy after the next housing bubble pops. Only bad thing is, right now rents are rising!

Housing bubbles are rare. Right now, in big cities with good employment and population growth prices are rising. They may rise for a long time, or not of course. But another true bubble may be more than a little time from now.
I do think that a reasonable place in a growing urban district is very unlikely to be a loser.

It is often said that in real terms, houses are close to breakeven. So what? Very little else that Joe Blow can go out and buy is likely to do even this.


Ha

 

[denefi]

I do believe that owning a home helped me to decide to stay in the area longer than I would otherwise have done. Renting is a perfectly logical thing to do at this stage in your life, especially in Boston.

I'd definitely be open to relocating in a few years once I'm through school and have vested, so that's a really good point. And, Boston's freakin' expensive!

From a FI perspective, I think what you are doing (renting in fun area, easy commute, no need for a car) is fine as long as a good portion of the the difference between that and owing a house is being saved and invested rather than partied away.

Check and check. Shoveling everything I can spare into the 401k.

I would definitely consider owning an RV though.......

Amen! I can't wait to do this!

I have been looking at rent vs. buy calculators that have been helpful. I do not have a favorite one but you can take a look online to find one that might work for you. There are some that appear to be fairly sophisticated.

I hadn't thought about this. Good call, thanks.

Play it right and buy after the next housing bubble pops. Only bad thing is, right now rents are rising!

Another good point. Buying right now would be a stretch and require me to basically contribute nothing to retirement. I'll be in a much better situation to do so down the road. And to haha's point afterward regarding the infrequency of housing bubble bursts, one thing we can say for certainty is that there will be another relatively low interest rate environment at some point in the future.

 

[timwalsh300]

My career has taken my wife and me to places where we would never otherwise choose to live, and we agree that it seems foolish to own property in such a place. We've generally decided on a plan to rent the minimum space we need, saving as much as possible along the way, until we are FI and finally able to choose where we want to spend the rest of our lives. I only want to buy a home one time.

Coincidentally, we both dream of moving back to Boston and purchasing specifically in the Back Bay (although we may settle for a less expensive neighborhood when the time comes). If we were already in Boston for our careers I guess the decision to rent vs. buy would be a lot tougher for us.

Tim

 

[Ready]

I could argue either way as to whether owning or renting makes more financial sense. However, regardless of the financial motivations, I just can't live in someone else's house. I would not want to worry about what happens if the landlord decides they want to sell, or move into the place. Or a complex that converts to condos, or drastically raises the rent, or places restrictions on pets. I just don't want to give up that much control over my environment.

If I was planning on moving around a lot, then renting would be the only logical choice. Unless you plan on staying put for a while, the fees associated with buying and selling would be a major drain. Since I don't like moving, that has never been a concern for me.

But I recognize that everyone has different views on this, so what works for me may not make sense for others.

 

[haha]

Coincidentally, we both dream of moving back to Boston and purchasing specifically in the Back Bay (although we may settle for a less expensive neighborhood when the time comes). If we were already in Boston for our careers I guess the decision to rent vs.Tim

This is where I lived before I came west. Nice place to be.

Ha

 

[pb4uski]

This is where I lived before I came west. Nice place to be.

Ha

+1 I've always said that if one needs to live in a major metropolitan area that the Boston metropolitan area is one of the best with its history, culture, sports scene, etc. But alas, I don't have a need to live in a major metropolitan area, so I live away from Boston (but it is the nearest major American city to us).

 

[Mulligan]

I'd definitely be open to relocating in a few years once I'm through school and have vested, so that's a really good point. And, Boston's freakin' expensive!

Check and check. Shoveling everything I can spare into the 401k.

Amen! I can't wait to do this!

I hadn't thought about this. Good call, thanks.

Another good point. Buying right now would be a stretch and require me to basically contribute nothing to retirement. I'll be in a much better situation to do so down the road. And to haha's point afterward regarding the infrequency of housing bubble bursts, one thing we can say for certainty is that there will be another relatively low interest rate environment at some point in the future.

Since you are young and saving, I would follow your heart and rent with a solo place. I would use the "mental math" of being car less as the equalizer in justifying your solo apartment. Cars in totality can be very expensive when you truly add up all the costs. You will have taken that off the plate as "punishment" for renting a little higher cost place and taking on no roommates.

 

[daylatedollarshort]

After seeing how far housing priced dropped these past few years, renting seems like a great idea, especially if you are young and don't have pets and thirty years of stuff to have to move every time your lease is up.

 

[TheFlyingScot]

In somewhat the same pickle here ourselves, but 180degrees opposite.
Currently in a house slightly underwater (10k) thats we bought in feb 2008 at a great-for-then-price.
Thinking of breaking even and then renting vs. staying and refinancing? Buying a new place, even though we plan on leaving the area entirely in 5-7 years I don't think we can justify possibly going to closing with $$$ to get out and then putting a sizeable chunk down on a new place.
We absolutely HATE the road we live on and it doesn't suit us at all, but you live and learn.
The rent vs. buy thing is very very frustrating.

My advice would be:
If your loving life right now and are putting good money towards retirement/FI, then live it up! Don't worry about buying or renting with someone else(2 introverts here; couldn't imagine renting with anyone!!!) to save 500/mnth if it takes away from the quality of life it seems you are enjoying to the fullest!

 

[Gatordoc50]

It used to be that owning a home insulated you from rising prices. Now, taxes and insurance and repairs have muted that advantage. Rents have risen but in my neck of the woods are still way below ownership costs. Not all real estate is a good investment. You have to be careful.

 

[A Bird In Hand]

In your situation, I'd rent. In fact, unless a huge fall in RE prices were to occur in the Boston area (and you planned on living there for quite a while), I'd consider renting for as long as possible. I'm assuming that your current and future rents would be well below what you'd pay for a mortgage+taxes+insurance in the area, which is likely. I'm also assuming that you'd use the cost savings wisely.

This is coming from someone who 1) profited handsomely after selling at the tail end of the last housing bubble, and 2) currently allocates almost 50% of monthly net income toward paying off the house early.

 

[RunningBum]

And to haha's point afterward regarding the infrequency of housing bubble bursts, one thing we can say for certainty is that there will be another relatively low interest rate environment at some point in the future.

Even with mortgage rated edging up recently, they've never been this low in my lifetime. I wouldn't count on them getting this low again in yours.

Still, I think you are in an ideal situation for renting and saving the difference. If you run any of those rent or buy scenarios, don't forget to include the probable cost of a car and insurance in the buy scenario.