Anyone renting for life?

[walkinwood]

To the OP - if you aren't sure you want to stay in the spot you are in now, renting makes a lot of sense. We - DW & I separately & together - rented till we were in our early 30s. After that, we felt we had enough "location" stability to buy. We lived in that first house for 15 years and have been in this one for almost 5. We rented for a year when we first moved to Denver.

 

[kimcdougc]

We have always owned in our 38 years of marriage until last summer. We sold our big house to our daughter and her spouse. Moved into her 1927 craftsman 800 square foot house. We are renting it from her and she told us since we gave her such a good deal on our house we can rent the little house for just what the mortgage is for as long as we want.

At first we thought we would just rent until we found something smaller in the Seattle area to buy, since then we have decided we will just keep renting. If we become long term renters we will help purchase appliances etc along the way since she is not making a profit from us. The house was totally remodeled in 2014. It has a very small yard and it is relatively a lock and leave house in town. We don't share any walls and have great neighbors. We actually like it very much and it is in a very central area and you can walk to everything.

Seems like we are very fortunate to be in our situation.

We have not ruled out purchasing something in the future, but for now we are good and we have a substantial amount of money in the bank from selling our house to her.

 

[haha]

Me! (For the most part, anyway.)

I did own a house that I lived in for 4.5 years. At the time, I loved my little house and was very open to the possibility of growing old in it. Then the market went up sharply, and I started thinking about how nice it would be to have all that money in my bank account. I sold the house, went back to apartment living, and ended up using the money to purchase 3 rental houses. Owned them for about 18 months while the market continued it's strong upward journey. Before long, I started weighing the thought of all that lovely equity I had built in a very short space of time, against the long-term liabilities of owning 3 houses. I sold them and haven't looked back.

Owning was fun and while I wouldn't rule it out again in the future, I really do like the lack of responsibility and liability that comes with renting. Being single, I don't have a family to house, or another person to think of. I suits me quite well. I do think that if you plan on being a lifelong renter, you also have to be open to being adaptable as to what kind of places you live in, and where you live. At some point, my current rental will probably no longer be a rental, due to the type of property and the age of the owner. Rent in the Bay Area has risen so sharply that when I have to move out, it will almost certainly be to another area. I'm open to change, and find the challenge of meeting it interesting.

Your discussion very completely highlights some of the pluses and the minuses to either renting or owning. Overall. I think renting in a quality, well managed building beats the heck out of condos or SFHs in a typically pricey central city. Nevertheless, back in 2011 I bought a condo less than a mile from Pike Place Market, near the nadir of Seattle property prices during the mortgage collapse. And I am really glad that I did. I still think the condo form is really flawed from so many points of view, but unlike Major Tom I really do not want to leave here, and I can see that barring a killer earthquake, eventually I would get priced out of good neighborhoods in the central area where I want to live. In fact, I might have already been on my way to Spokane.

My idea is if you think the place where you want to stay is attractive to a lot of people, and particularly if it has growing amounts of highly paid employment, find some way of guarding your position. For me, back during that crash, I thought ok Ha, get going now, or you will certainly be sorry. Someone who is way over financed, so that even in retirement he can compete with other high earning renters, or renters doubling up with other high earning renters wanting central locations then no problem. But I have been around always in attractive places for a long time now, and I think that in this as in most other things, it is generally a good idea to be aware of timing.

Ha

 

[socca]

Rent vs own is partly a financial decision & partly a personal satisfaction decision. The amount of time I spend maintaining/upgrading my house is grossly out of proportion to the house's contribution to my net worth. So, why own? Call it pride of ownership. I worked hard to find my house, and I feel lucky to live there. YMMV.

 

[haha]

+1 to this analysis -- and don't forget the opportunity cost of not investing that capital in liquid assets that earn a higher rate of return than real estate. The NYT put together a pretty comprehensive make vs buy (rent vs own) analysis for this that we use periodically to assess the question.

IMHO in most HCOl areas, renting almost always comes out better if you use realistic returns and rates. See https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

It would take a lot of luck to do better buying any index fund compared to buying beachfront there in Manhattan Beach. Back in the 70s one could sell a house in Pasadena and buy one very near the beach in Manhattan or Redondo or particularly Venice and likely have money left over. This seemed to me to be a gigantic mispricing.

Scarce is what gets the prize.

Ha

 

[Gumby]

We have owned the same house for the last 24 years. It has increased in value at the rate of inflation + 1 to 1.5% per year over that time. Even now, we could rent a pretty decent apartment for the amount we pay in property taxes, insurance and maintenance. All in all, renting is likely the wiser decision from a pure financial standpoint, but there is something to be said for having a place of your own that you can make just the way you like it.

 

[Fedup]

Up 12% for first quarter.
Seller's market? Bay Area home sales slip, but prices soar

 

[clobber]

From a financial point of view, no one has mention the price-to-rent ratio. Clearly there are more factors (taxes and maintenance), but you can easily see at the link below how where you live should significantly influence that decision.

https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities

Im not sure of the numbers though. Can you really rent a $550k house for $1k/mo in San Francisco?

 

[Nemo2]

We have a modest condo townhouse in a smaller city.....some time back, (and I'm going from memory here), did a rough calculation of what we'd have to make with the money garnered from the house, if we sold, (also factoring in property tax/condo fees, etc), and then rented.

IIRC it would take somewhere in the region of 7.25% net to place us in 'suitable' accommodation (owned by somebody else).

Dropped that idea.

 

[FUEGO]

From a financial point of view, no one has mention the price-to-rent ratio. Clearly there are more factors (taxes and maintenance), but you can easily see at the link below how where you live should significantly influence that decision.

https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities

Im not sure of the numbers though. Can you really rent a $550k house for $1k/mo in San Francisco?

Their methodology appears unsound.

Using U.S. Census data, SmartAsset calculated the price-to-rent ratio in every U.S. city with a population over 250,000. Applying that ratio, we also calculated a projected average home price for a house or apartment that rents for $1,000 in each market.
Note that actual home values will vary based on factors such as proximity to commercial centers, access to transit and home size—rentals tend to be smaller (and therefore less expensive) than for-sale properties, so these values may overestimate true market prices.

It seems like they took the average rental rates in a city and compared them to the average sales price (or some similar metric - does US Census data even include this data set??). That's why they mention that rentals tend to be smaller. In other words, "it's more expensive to buy a larger place than it is to rent a smaller place, so our conclusions are probably invalid". They should compare rental cost of a house vs purchase price of a house of similar size, or rental cost of an apartment vs purchase price of a condo/townhome of similar size and amenities. The data is there - plenty of neighborhoods have houses/units for sale and also have an active rental market, so it's not too hard to do apples to apples comparison.

In our city, Raleigh, their analysis says it costs $268,000 to buy a house that would rent for $1,000. No house in my neighborhood costs that much and even a dumpy 3 bedroom (that might sell for $150k) would rent for $1000+. I can't think of a place in town where this $1000:$268000 ratio would hold true, but I'm sure there are exceptions (tons of land value, dumpy house = high purchase price but not much value as a rental; thinking a tear down in nice part of town or acreage w/ small house way out of town).

 

[Music Lover]

Their methodology appears unsound.



It seems like they took the average rental rates in a city and compared them to the average sales price (or some similar metric - does US Census data even include this data set??). That's why they mention that rentals tend to be smaller. In other words, "it's more expensive to buy a larger place than it is to rent a smaller place, so our conclusions are probably invalid". They should compare rental cost of a house vs purchase price of a house of similar size, or rental cost of an apartment vs purchase price of a condo/townhome of similar size and amenities. The data is there - plenty of neighborhoods have houses/units for sale and also have an active rental market, so it's not too hard to do apples to apples comparison.

I think it's accurate that most people would tend to rent a smaller place than they would choose if they were buying. So, you can't really compare apples to apples because one choice is apples and the other choice is oranges.

 

[Olbidness]

I sold my 4bdr. house 6 years ago and moved to a 2bdr rental to be nearer to a new job. It has worked out well as I had to do a major de-clutter, which continues to this day. I'm within 2 months of having the details of my job wrapped up, at which point I'll be free to go anywhere it pleases me.
As much as I enjoy the stability of owning, the freedom of renting appeals to me more. I have toyed with the idea of full time RVing or I could see renting a small apartment or condo, with easy access to a major airport, that I could lock and leave for a couple months at a time.

I guess my main objective early in my retirement is to be able to travel as much as my finances and health allow. Fewer obligations and more freedom are a high value. At some point, when I'm less mobile I may buy.

I see lots of people spending lots of time/money/energy to live in a house that will be burden at some point. From my POV I'd rather live very simply and just maintain that.

 

[Gotadimple]

I would only add to this discussion that if you choose to buy, over time, you will have below market 'rental costs.' Assume whatever value you wish for a mortgage when you first buy, then mortage/property tax/upkeep costs will be less than renting.

If you don't plan on living in a place for 5 years or more, then renting is a better option. There are higher acquisition costs to buying in the early years.

- Rita

 

[FUEGO]

I think it's accurate that most people would tend to rent a smaller place than they would choose if they were buying. So, you can't really compare apples to apples because one choice is apples and the other choice is oranges.

I would say it's more like comparing a small apple to a large apple. Not surprisingly, it's usually cheaper to buy a small apple, and larger apples tend to cost more. But it is certainly possible to form a reasoned opinion by comparing apples on a per unit basis.

Why not look directly at the cost of renting one place versus the cost of buying a similar, if not identical place? Plenty of data points on zillow, MLS, craigslist etc for asking prices or actual sale prices and rental prices. I'd take that analysis even with a small sample size versus the quoted study of average home price versus average rent price.

 

[Teacher Terry]

Rents and home prices continue to increase here and young people often can't afford to buy or if they do they are house poor. If we did not own I could see us eventually being forced out of here by the high rent prices like Ha talked about. We downsized to 1400 sq ft in town 5 years ago. As we have 4 dogs it would be pretty hard to rent.

 

[Mdlerth]

Monthly utilities, taxes, etc., are less than rent, plus 2 bands rehearse in my basement... not possible in an apartment... so owning is best for me.
.

+1

In addition to all the other apple-vs-orange observations, this aspect of ownership is critical for me. I can do virtually anything I want in my own house; I couldn't in the apartments I rented.

Intangible benefits are tough to quantify but they are no less genuine than the $-based ones.

 

[Music Lover]

Intangible benefits are tough to quantify but they are no less genuine than the $-based ones.

True. I've always wanted to own/live in a house, and that has value to me. Other people feel differently and that's fine. Owning a home is rarely just a matter of dollars and cents...it's a lifestyle choice.

 

[dvalley]

Renting gives you the flexibility to move each year (typical lease term). However, you're throwing money into a bottomless hole. In my case (similar to Rodi's example and similar area too) my house is worth about $600k today, to rent it I'd be paying at least $2500 a month and add to that for the annual increases. My mortgage is only about $1500 (about $2k with insurance, taxes), sure I have some money tied into it in the form of downpayment and equity but I would be paying $2500 to rent the same place, not get the tax advantage, or the equity gains. So it makes no sense to rent. Eventually, when I'm ready to retire I'll sell the house, take the equity gains and buy a house outright in a LCOLA and never have a monthly rent/mortgage which is typically one of the biggest expenses (if not the biggest).

 

[Music Lover]

Why not look directly at the cost of renting one place versus the cost of buying a similar, if not identical place? Plenty of data points on zillow, MLS, craigslist etc for asking prices or actual sale prices and rental prices. I'd take that analysis even with a small sample size versus the quoted study of average home price versus average rent price.

Because if people won't rent a house as large as they would buy, then it's a meaningless comparison. If you want to fairly compare housing costs, then you must compare the cost of a house that you would buy if you were buying compared to what you would actually rent if you were renting.

 

[Olbidness]

My mom still lives in the same rust belt town where I was born and raised. She bought her condo in 1978 and it is valued at about what she paid for it then. Unusual to be sure. She is now looking at a CCRC that has facilities that range from assisted living to skilled nursing. I've seen a few of her friends run into problems not planning ahead, and their living arrangements being incompatible with their health or mobility issues.

Rent or buy situations change and it pays to look ahead. I try to keep an open mind and be willing to change.

 

[brett]

We owned homes for most of the time. Retired, downsized, and sold our home four years ago.

We decided to rent and continued to rent for four years as the market went into decline.

We just bought another home at slightly less than we would have paid four years ago for the same home. During that time our home equity earned us an average of ten percent per year over the past four years. It essentially paid for four years of extensive travel.

It is different when you are retired and have no children to consider. there is an opportunity to take advantage of the market. Home ownership really depends on your family situation and on the economics of where ou happen to live.

 

[kcowan]

After owning for 30 years, we were the first of our peers to rent. We searched for 4 month with a realtor and finally gave up. Then discovered a perfect place to rent.

We redid the research again in the summer of 2016 and reached the same conclusion. Had we purchased, we would have been unable to retire without downsizing.

10 years ago we bought our snowbird condo. Gets lots of help from the for hire crowd.

I would say: It depends. Geography, selection and pricing. We always treated our place as ours and made improvements. Probably a good idea after 20 years. The landlords don't object if it is tasteful enhancing value.

 

[brett]

Renting opened our eyes. It certainly can be the best financial and lifestyle alternative for some people. Homes are huge assets. They can be difficult to sell and the asset value, unlike equities, is not divisible.

Our four years of renting opened our eyes to how some people view renting. Renting for us over the past four years was financially far better than ownership. It was perfect for us from a lifestyle perspective.

DW asked what the financial benefit to us was over the past four years. After tax, approx $180k based on selling a home for $750K and placing the proceeds in the market. That is a big chunk entirely attributable to a down real estate market and a well performing (for us) equity market. But, if we had been living in two other cities that we are familiar with those numbers would have been reversed...or worse.

We had people make comments asking if we spent all our money travelling, lost it in the market, etc. Some could not imagine why anyone would rent.

 

[Totoro]

I am a renter and will likely remain that way.

Something about concentrating a very large part of my net worth in one asset (leveraged when mortgaged) I don't really understand (and doesn't interest me) doesn't sit right with me. And I'm lazy, so home maintenance .. no thank you. Yes, I'm single too.

I don't rule out home ownership though. Some areas that I might want to live in simply don't have a rental available (thinking rural new zealand here). Others have a skewed rent/own ratio where it is financially silly to rent (again, New Zealand). At similar cost/risk/reward profiles I prefer rent, but hey, sometimes the odds might be good.

Where I'm at right now the gross yields on rentals are well below 4%, sometimes as low as 2%. And then there are the local authorities who kill you softly with real estate taxes.

 

[Totoro]

Linked this before, it is a great summary:
Why your house is a terrible investment