Is Home Ownership Essential to the American Dream?

[ER2CR]

I find this thread very interesting. I sold my home (owned outright) over 2 years ago and have been renting since. The reason for selling was a move to a new city and job. I took the house money and spread it around into various safe, fixed income investments. The plan is (was) to sit on that money until we (DW and myself) finish our "nomadic" period of ER (starting in 2014). Once we find a place we want to stay, we would then buy a house for cash to establish some "roots" (as DW says) but to also lessen our monthly budget.

When I run the numbers in Firecalc the results come out pretty close either way (i.e., a higher budget including rent funded by a higher investment account vs. a lower budget without rent funded by a lower investment account). This is based on a $500K housing budget vs. a $1,500/mth rental budget.

Therefore, at this time, and based solely on the math, I am on the fence. However, I suspect as time goes on, the decision will likely become more of a psychological one than an analytic one.

By the way, 0 kids + 0 house = 0 commitments, thus the opportunity to indulge a "nomadic" lifestyle ... at least for a while

 

[haha]

This is based on a $500K housing budget vs. a $1,500/mth rental budget.

Since one can get $1500/month rent from a place costing half of that $500K, it seems that it would generally make amore sense to rent in this case.

I would want to be able to move out and rent my place profitably; but I know many people have different feelings about their dwellings.

Ha

 

[Amethyst]

Ha ha! I just have to be perverse. When we got engaged, I was willing to settle for 1/2 carat, but Mr. A. insisted on buying a full carat solitaire. He thought it looked better. Who was I to argue?

Amethyst

T
But tell that to the girl you'd like to marry--that an expensive diamond engagement ring is mostly a money-making gimmick by the diamond-industry monopoly--and that a simple golden ring should suffice to express your love and commitment of forever.

 

[Mulligan]

Since one can get $1500/month rent from a place costing half of that $500K, it seems that it would generally make amore sense to rent in this case.

I would want to be able to move out and rent my place profitably; but I know many people have different feelings about their dwellings.

Ha

This rent/buy issue certainly cannot have a universal answer to it that is for sure. Where I live owning is considerably cheaper than renting. The few ranch homes that rent would be around a $1000 a month, while I pay mortgage and escrow of $693 and get a small tax deduction back, also.

 

[gozer]

This is based on a $500K housing budget vs. a $1,500/mth rental budget.

The housing budget vs rent seems odd to me. Where I live, I can buy a $500,000 house with 20% down and get about 3.6% on a 15 year loan today. That would give me a monthly P+I of $2979 plus another $900 for escrow. So around $3800 a month payment. If I had less down or had a longer term loan this would be even higher.

So where I live, a $500K house and a $1,500/mth rental are apples and oranges. A 500K house is 5-6 bedrooms, 5000-6000 sq ft and a 3 car garage. According to Zillow, when renting a house near me today, $1,500/mth will get a house 1/3 that size with 3-4 bedrooms and a 2 car garage at best. Apartments at that price have 3 bedrooms and are even smaller.

An equivalent house to the rental you describe in my area would cost around $170,000 to $190,000 today. Just a couple years ago a $245,000 house on my old street became a rental. (It was the neighborhood scandal) It rented for $3000. Looks like rents have come down a lot in my area in the past two years.

Your market has much different ratios than mine if $500K is a fair comparison to $1,500 rent. Or maybe you are willing to rent a house/apartment that you would not be willing to buy since you see it as temporary.

 

[scrabbler1]

I remember running the numbers when I was considering buying a co-op apartment versus renting back in 1988-89. I had to compare the after-tax cost of my co-op's maintenance plus my own mortgage versus the non-deductible rent I had been paying. Most of the maintenance were property taxes and the interest on the co-op's underlying mortgage, whle most of my own mortgage was interest (back then, co-op loan interest rates were in the 10-11% range, OUCH!). I did not count the small principal portion of my mortgage payment because I was adding a dollar of home equity for each dollar of principal paid.

And I had far more control over my mortgage because I could refinance it (which I did in 1992 when interest rates thankfully tumbled) and later pay it off entirely (which I did in 1998). This left only my maintenance charges which for 7 years in the 1990s did not change (and in fact declined slightly when New York State introduced its STAR program, reducing local school taxes).

Even with some maintenance increases in the 2000s (and some recent decreases due in part to the STAR program being fully phased in), I am paying less in maintenance today than I was paying in rent in 1989, and that does not take into account the deductibility of some of the maintenance (if I can keep itemizing, not a given any more).

I did have to go through some declines in the value of my apartment in the early-mid 1990s, putting my apartment underwater for a few years. But I did not care because I wasn't going to sell my place. Today, the apartment's value is considerably higher than it was when I bought it.

Buying my place, although had I waited one more year I could have bought a bigger place for the same money, was a big reason why I was able to ER in 2008.