Importance of locking in housing costs?

[Arizona1]

We sold our big house in a glitzy area and have been living in our motorhome since 2000. After traveling around North America and spending a few years in Europe I can’t imagine having such a big house or any of the huge wood furniture we owned before.
The value of an rv after 20 years is about zero so it was good we invested the house money in case we buy a home again but it would definitely be a smaller home in a different area. Our short term apartment rentals have been really negative experiences because of loud neighbors.

 

[papaof2]

We've chosen to own and we're in the second paid-for house. Property values can change, which change taxes and homeowner's insurance costs but if my better half wants green shutters one year and black shutters the next, it's our choice. The no-monthly-payment to budget and the privacy and control of ownership are worth it to us.

 

[Rustic23]

Texas law allows one to Homestead there property. If you are over 65, you can defer your taxes until death or you move out. One problem, if you have a mortgage, your mortgage co can deny this.

So a paid off house gives you the ability to avoid housing cost. You still have energy cost, and maybe HOA fees, but it is a nice hedge to inflation. It boils down to who is going to enjoy your money, you or your kids. (They have 180 days to pay off the tax, plus 8% simple interest). If they can’t the house goes to the county.

So for me, having a paid off house is like a small insurance policy.

 

[HMMY]

We've owned and rented and now own again. We loved the maintenance free lifestyle of renting, especially when we were considering moving out of the state or country. We did not love the ever-increasing rents and renegotiating our lease every year. Once we decided we were staying put, we bought again. We bought to lock in low interest rates and avoid rent inflation. I didn't care much about being able to paint and decorate, but we just did a gut reno, and I have to say I'm very happy to own.

 

[Retired Expat]

I am having the same question about renting vs buying right now. I have been renting since 2013. I owned most of the years from 1980 until then.

During our rental period, we did have the unfortunate experience of the landlord ending our lease about 7 months before we planned to move. Our yearly lease was up and he decided to sell. Finding another place to stay for under a year was a real problem. We found a place for 7 months but it was a major compromise. Like most problems like this, we came out of it alive.

Our experience selling our next to last house was a nightmare. That took about 12 months with each month lowering the price but not enough. I never did an analysis of the costs but I expect after new windows, fixing up the kitchen, and other costs, I did not make money after living there for about 10 years.

I have found most people do not really know the costs of their home. For example, they know their monthly payment but do not execute the analysis for a new roof, windows, plumber, lawn cutting and investment loss costs on a down payment, interest, etc. I think people on this forum are more aware than most.

The key question for me now will be length of time we will be staying in the new community. The amount of travel we will be doing which is far more worry free in a rental. It is a great feeling to just lock the door when we leave for 4 weeks and not really worry if the pipes freeze, the basement floods, etc. Not that we do not take care of the property like our own but the consequences are not the same.

Ultimately however, it will come down to finding a rental that works for us. We will avoid a property that might be sold. And it will need to be a property that meets our needs. I think the first choice will be a rental. If we can't find the right one, we will buy. At the end of the day, the property needs to be meet our lifestyle. Rentals can do that for their design and the worry-free aspect.

While I try to buy Real Estate with an eye towards appreciation if it is for my residence that has to be a secondary or less consideration. I have made a lot of money on investment property and on the whole my residences over the years but that was hit it miss. I buy to be able to enjoy my life, my hard work and success. I look at any cost of ownership or losses as part of the cost of living that kind of lifestyle and amortize it over the years I lived there. In December will close on the sale of our old house.

We will get back what we paid but not the 50k in improvements. But we enjoyed it a lot for 10 years and I don’t know if moving to Uruguay would have “stuck” had I not purchased and made a house there mine. In a rental I couldn’t have done that and most of my expat friends who only rented did not stay. Just one of the intangibles you need to consider.

 

[UKadventurer]

I'm British but live in Mongolia so what I tell you might not be relevant to most of the members. Maybe it's interesting to some.

I only took FIRE last year and was a renter since 2006. This was entirely suitable since I moved so much. Now I need a base (or maybe 2). Land is cheap in Mongolia but I can't own it. However, my wife can as she's a citizen. We can get 5000m/2 (about 1.25 acres) for $10k. The area surrounding it is public land and it's VAST so we don't really need to buy a lot of land to have a serene, somewhat isolated feeling.

We looked at renting again but the rents have gone sky high, even in the countryside. So it makes much more sense to own land and build something. Then we looked at building costs and they are high too but far less than the USA (where I lived for 22 years). I'm still youngish and physically fit. Also, I've done substantial remodels on my homes in the USA, including carpentry, plumbing, electrical, etc. So I'm confident I can handle a home build, especially with SIP's (structural insulated panels) which are like an Ikea home - they come flat and your screw them together.

However, due to Covid-19, building materials are high due to transportation issues. So I plan to use local materials wherever possible. We'll start in Gers (yurts) which cost about $3k each for a nice one and expand with added units. I think 2 will work well for us. I'll just need a foundation which I can do myself since it's a hillside location. It'll probably be a dry-stone rock bed foundation with EPS for insulation from the ground. There's tons of rock just next to our land, so it's ours for the taking. Yurts are lightweight so no need for complex engineering and they are portable if we decide to move sites.

It's virgin land so it'll be off-grid but it's only 30km from the city but you wouldn't know it. The challenges are extensive but I've got the time and enthusiasm to take on challenges and come up with solutions. This kind of thing is what I live for. A dull life in the city or suburbs would be the death of me.

 

[HI Bill]

I was always afraid of being priced out of markets for condos and/or houses, in HCOL areas. Here's my pre-retirement story: In 2020, we bought a house in a good neighborhood for $1.0M (more than I wanted to pay, and more than I thought we should). Just 13 months later, it's worth $1.4-1.5M. If we had waited, we would have never been able to afford the house without sacrificing planned travel. You can certainly get priced out of rental units, and of course, can be forced to move, but you have lower operating expenses, and can move easily.

 

[HI Bill]

...First, I think residential housing cannot go up long term at a rate greater than personal incomes. This is a slight mod on the idea that it will follow inflation, as personal incomes IIRC rise slightly faster.

While that might be generally true, in highly desirable markets (like Hawaii), the cost of housing isn't tied to wages. It's heavily influenced by retirees who move here with lots of $ to spend, many of whom left HCOL areas in the mainland (selling expensive Bay Area or Southern CA homes), and some non-retirees looking for investments (outside of China). Many Honolulu condos are empty, owned as safe investments from foreign interests.

My first condo purchase was on Maui, for $90K. I sold a few years later for $200K. Prices increased to $340K, then plummeted. Now, the same condos are running $470K. These are 800 SF starter condos. Wages haven't kept up with the rising cost of real estate there, in the past 20 years. Many working folks get two jobs, or room mates to make ends meet.

 

[Sunset]

I'm British but live in Mongolia so what I tell you might not be relevant to most of the members. Maybe it's interesting to some.

I only took FIRE last year and was a renter since 2006. This was entirely suitable since I moved so much. Now I need a base (or maybe 2). Land is cheap in Mongolia but I can't own it. However, my wife can as she's a citizen. We can get 5000m/2 (about 1.25 acres) for $10k. The area surrounding it is public land and it's VAST so we don't really need to buy a lot of land to have a serene, somewhat isolated feeling.

We looked at renting again but the rents have gone sky high, even in the countryside. So it makes much more sense to own land and build something. Then we looked at building costs and they are high too but far less than the USA (where I lived for 22 years). I'm still youngish and physically fit. Also, I've done substantial remodels on my homes in the USA, including carpentry, plumbing, electrical, etc. So I'm confident I can handle a home build, especially with SIP's (structural insulated panels) which are like an Ikea home - they come flat and your screw them together.

However, due to Covid-19, building materials are high due to transportation issues. So I plan to use local materials wherever possible. We'll start in Gers (yurts) which cost about $3k each for a nice one and expand with added units. I think 2 will work well for us. I'll just need a foundation which I can do myself since it's a hillside location. It'll probably be a dry-stone rock bed foundation with EPS for insulation from the ground. There's tons of rock just next to our land, so it's ours for the taking. Yurts are lightweight so no need for complex engineering and they are portable if we decide to move sites.

It's virgin land so it'll be off-grid but it's only 30km from the city but you wouldn't know it. The challenges are extensive but I've got the time and enthusiasm to take on challenges and come up with solutions. This kind of thing is what I live for. A dull life in the city or suburbs would be the death of me.

Sounds like quite an adventure.
I'm guessing you will install a solar array of a few panels at least for the convenience of electricity, maybe I'm being stupid and they have electricity running right to the property line as it's only 30km from town?

Have you decided to use an out-house or will you be installing a septic field ?

Feel free to start a thread and post some photo's over time as things take shape.

 

[Sunset]

While that might be generally true, in highly desirable markets (like Hawaii), the cost of housing isn't tied to wages. It's heavily influenced by retirees who move here with lots of $ to spend, many of whom left HCOL areas in the mainland (selling expensive Bay Area or Southern CA homes), and some non-retirees looking for investments (outside of China). Many Honolulu condos are empty, owned as safe investments from foreign interests.

My first condo purchase was on Maui, for $90K. I sold a few years later for $200K. Prices increased to $340K, then plummeted. Now, the same condos are running $470K. These are 800 SF starter condos. Wages haven't kept up with the rising cost of real estate there, in the past 20 years. Many working folks get two jobs, or room mates to make ends meet.

Plus HI is restricted in the amount of build-able land available.

 

[UKadventurer]

Sounds like quite an adventure.
I'm guessing you will install a solar array of a few panels at least for the convenience of electricity, maybe I'm being stupid and they have electricity running right to the property line as it's only 30km from town?

Have you decided to use an out-house or will you be installing a septic field ?

Feel free to start a thread and post some photo's over time as things take shape.

Thanks for asking. It will definitely be an adventure as I grew up in the suburbs in the UK then cities all over the world. However, I think I'm still young enough to have a 3rd act in my life in the countryside.

Regarding the electricity situation, it could be a hybrid solution. There's nothing there yet (virgin land) but there's an electric line about 200-250m away so it could be cost effective to connect. Electric rates are very cheap here and even free at night in winter. So that's a good main source but it might change in the future as coal is phased out for power generation.

So, I'll need a backup or two since winter's are harsh (40 below zero in January at night) and a power outage could be deadly. We'll have a multi-burner stove for heat and cooking (wood, coal, pellets), solar/battery and a diesel generator for devices and appliances. We'll try to live simply but we're not going back to the Stone Age.

Regarding toilets, I'm researching composting toilets. I don't like the idea of septic tanks but I don't know about fields (should research that0 and we want to grow some produce so composting looks ideal. We're next to a forest and we'd like to grow some more trees but it's harsh there and only a few species can survive, such as Siberian larch and maybe Siberian pine. I'll need to do a lot of research and gather some local knowledge on what that species needs.

The solar/battery is cost-effective on a small scale but heating and power tools (welder) could tax it, so the grid and diesel generator would supplement that for high-demand usage.

I like your idea of sharing our journey. It could give me something to do.

Back on topic, I hope to control future costs, since I'll be on a modest fixed income, by buying land, investing money now to control the running costs in the future (solar energy, growing food, using local materials etc).

 

[pjigar]

I'm surprised that no one has mentioned the false premise here: That owning your home will "lock in" housing costs. The only lock-in IMO is locking into a steady stream of increasing future expenses: utilities, real estate taxes, routine maintenance like paint, electrical and plumbing, major maintenance like roofs, driveway concrete, exterior siding and painting, "caretaking" like lawn care,... The beat goes on and the lyrics get more and more expensive.

That said, I wouldn't consider renting, but our costs aren't locked in. Don't I wish.

You have a point there. But a lot of states have property tax breaks for the home owners but not for the renters. We bought an acreage specifically so we can have a reduced property tax under agriculture use exemption. No HOA to boot.

 

[captain3d]

As a renter I do not pay property tax. I do benefit from the low property tax that the landlord pays as they have owned the property for 40 years. The rent reflects their expenses.

 

[pjigar]

As a renter I do not pay property tax. I do benefit from the low property tax that the landlord pays as they have owned the property for 40 years. The rent reflects their expenses.

It doesn't work that way. Rent usually reflects landlord's expenses plus some healthy profit. But generally rent is what market can bear which may be a lot more than landlord's expenses. For example, across all my properties, my net cash flow is about 20% of rents and rest 80% goes to the expenses including mortgage. So yes, renters pay my mortgages AND they pay me 20% of rent as a profit. Capital gain on RE is a cherry on top.

 

[OldShooter]

As a renter I do not pay property tax. I do benefit from the low property tax that the landlord pays as they have owned the property for 40 years. The rent reflects their expenses.

Well there are always going to be landlords who don't know how to price, but it is the market not landlords' expenses that establish the market price. If you are getting a below-market price, good for you.

When I was in the business, I tracked prices for similar buildings in my neighborhoods. This was back in newspaper advertising days so it was relatively easy and the contact telephone numbers told me which building(s) were being offered.

From that data I would set advertised prices for available units. If I got no qualified responses, that price was too high and needed to be cut. If I got an adequate number of qualified responses, I rented at that price. If I got buried, I re-advertised at a higher price.

For people in the buildings/annual increases, I generally raised to a few dollars below market as I did not want to have anyone moving out. My best, low hassle, tenants got even a little better deal.

If a landlord's costs are too high relative to market rates, it is not the market rates that have to be fixed.

 

[captain3d]

I am also a landlord. Just not where I live as the rents here are cheap compared to property costs.

 

[HawaiiShrimp]

Great question. I thought about it all the time. My current situation is:
I like to own the best house my budget allows. $5M or less, $5000 sqfts, at least 5 bedrooms. I'm willing to put 20% of my money in this house because my family can enjoy it everyday. Certainly, it's a luxury item, but I think it's worth it.

 

[baskin]

Interesting topic, but circumstances are critical in the rent vs buy question. Take the example of a 76 year single male with say some health issues. Buying requires some upfront costs that can take years to recoup. Transfer taxes, large down payment, etc. What of future mobility? In that case, renting would seem the most practical. Now if a 62 year old, then it seems a different case.

 

[FLSUnFIRE]

Day to day living, I really enjoyed the periods I rented as I had limited liability and maximum flexibility. When I own, small things bother me but renting, I'm ok if the siding has some rot... just tell the landlord and if they want to wait and pay more later, that's their issue! It also made short term budgeting/cash flow management easy (but long term -important for FIRE, more challenging).



However, I did not feel as secure knowing I could be forced to move or face rent increases. I find I prefer to own due to that. Also, as has been mentioned, homestead exemption will help out long term in FL. Heck, the property tax on my first house without homestead, would almost exceed all other ownership costs combined now, 20 years later. Rents in St Pete are exploding now (30-40% increases year over year) along with home prices/taxes so I am so glad that I bought when I did in 2019.