Rethinking Real Estate Rent V. Buy

[kcowan]

We bought in the south for $200/sq.ft but we rent in the north for $1.70/sq.ft. per month because purchase prices were $900/sq.ft. plus taxes and condo fees.

 

[smjsl]

Where I live, taxes + insurance + maintenance (guesstimated based on depreciation of various parts of the house) + outside services (lawn/driveway) come out to just under the rent (note: there is no mortgage in the above-mentioned money)... I continue owning to save on that small difference (+ maybe house value will go up ), but I hope some day I will be rich enough to afford renting again instead of owning, so I don't have to worry about all the maintenance headaches...

 

[meierlde]

Relatives of a friend of mine had a device installed on their back stairs. There is a seat to sit in, which automatically ascends up or down the stairs as desired. I don't know how expensive these are (and it does take a few minutes so it would not be for the impatient), but maybe that sort of arrangement could help.

There is one where I live because my mother needed it to get up and down. it takes about 1/4 of the width of the stairway. It enabled my mother to get up and down for about 4 years.
Actually the critical other question is door width. 36 is a minimum, as well as putting in ADA compliant toilets (higher seats)

 

[meierlde]

One other factor to be considered is how long you intend to live in the house. The real estate industries private transfer tax runs about 10% on the whole deal, plus whatever your state may charge. Assuming for the sake of the discussion, that home prices will be stable for several years, you do need to add that to the cost of owning.

 

[Walt34]

I always wanted to own my home. I did rent an apartment by myself for two years, with a roommate for a year and a half, and with wife# 1 for a year. As others mentioned that was my introduction to roaches, limited parking (a PITA when I got off work at 0200) part time hot water, heat and A/C that didn't always work in tandem with the weather, noisy neighbors and rent that rose faster than my income.

And at the time house prices and interest rates were skyrocketing to the point that there was speculation that soon only the very wealthy would own homes, so I was in a hurry to buy and get my housing costs fixed in place instead of being subject to the variables of the rental market.

But I also had a stable job and a transfer to a different location meant at most an increase in commuting time of 20 minutes.

At this point I can see us eventually moving to a continuous care place but hopefully not anytime soon. That worked out great for my mother, although I'd want a single family home for as long as I can walk. The only misgiving I have about that is the variable of monthly fees - a heavy round of inflation, which I see as almost inevitable the way the govt. is printing money - might make even that unsustainable.

 

[WhoDaresWins]

I don't know if I would be better off financially renting vs. owning (probably) but I sometimes find the thought of renting alluring. I am not skilled at home maintenance at all (and have no interest in it if the truth be told). My husband was handy and always did everything around the house (other than cleaning or laundry) or hired someone to do it. I used to tease him while he was slaving away on some task by saying that if anything ever happened to him, I would have to take up residence in an assisted living. Well, after he passed away, I sold our money pit of an older house within 6 months and moved into a brand new much smaller home close to my office. I figure by the time this place starts falling apart, it will be time to move again...maybe to a rental apartment. My taxes are quite high, and it is not cheap to hire everything out (like the gardening and the snow shoveling).
I don't think the construction of my new place is of particularly high quality, but I guess the contractor was okay as I have never had to call someone in for a home repair in the six years that I have lived here. Knock wood.

 

[Alan]

Knock wood.

... but too hard - you may have to repair it.

 

[youbet]

Where I live, taxes + insurance + maintenance (guesstimated based on depreciation of various parts of the house) + outside services (lawn/driveway) come out to just under the rent (note: there is no mortgage in the above-mentioned money)... I continue owning to save on that small difference (+ maybe house value will go up ), but I hope some day I will be rich enough to afford renting again instead of owning, so I don't have to worry about all the maintenance headaches...

I think you should also include the opportunity cost of the money you have tied up in the house (it's market value) as part of the cost of ownership. I usually use a conservative estimate of what it would net me if sold invested in 5 yr treasuries.

The opportunity cost of money tied up in the house is just as real as the cost of monthly mortgage payments, just a little more sophisticated to get your hands around.

 

[friar1610]

....Next we looked at condos. If economists are unhappy about property taxes then they'd be downright despondent about HOA fees. I'd have a hard time spending $300-$500/month to have to listen to Mow, Blow, & Go Landscaping moving the leaves around. While many condos are 1-2 story and nicely equipped, most resemble high-rise apartments with, of course, the extra fees.

My wife and I are staying at my daughter's house in MA this week to baby sit while she and her hubby are on a trip. Earlier today we were riding around a few towns on the North Shore wondering what the lifestyle would be like there. My wife asked, "If we ever move to someplace like this closer to family, would you want to live in a condo/over 55 community or a single family house?" We talked about that for a while but it got me to wondering: what do you suppose the economics are of paying condo fees to get all the maintenance (mowing, plowing, painting, gardening, etc.) done vs. paying for the same yourself in a single family house? (Assume the living quarters are roughly the same size and that the lot for a SFH would be pretty small.) I know that varies by the overall condition, age, etc. of the respective properties, but I'm thinking of an 1800 - 2000 sq. ft., 3 BR place with 2 baths and a 2 car garage or something of that ilk. Like Nords, I've been really surprised by how much the condo fees are in some places I've seen advertised. But to pay someone to do the same jobs costs money too (although you clearly have more control over what you do when and can do comparison shopping if you're in your own SFH.)

Has anyone out there ever done a serious comparison of costs?

 

[youbet]

friar 1610 -

I agree that condo fees seem high. With the economy of scale, tiny areas of outdoor maintenance on a per unit basis, shared areas and the like, I'd think monthly assesments would seem like a bargain. Yet when we shopped around we found the fees to be high.

My home is small and easy to maintain. So far I'm only paying to have a lawn service and that started just this year so we could be away more easily. But even as we choose to have other projects done by others, I'm not anticipating the cost to equal what I'd pay in a condo. And, of course, there will always be small things we'll continue to do ourselves that we don't consider a burden.

 

[W2R]

Has anyone out there ever done a serious comparison of costs?

We have tried to roughly estimate both, and we think the higher cost of maintaining/insuring a home along with having lawnmowing and snow removal done for us, would be more or less comparable to HOA fees. However, that doesn't include any time and aggravation required in arranging for such services.

Our main reservation when it comes to condo living is the possibility of ending up with a tyrannical HOA making our lives miserable in some way or another. This is enough of an issue for us that we are leaning against moving into condos.

This week I arranged for my lawn guy to also take care of the bushes, vines, and other plants around my home. This service is more expensive than just a mow. Having no desire to garden at present I think this is a good use for my excess money. No time or aggravation, but then it took several years for me to find a good lawn guy to begin with.

 

[haha]

friar 1610 -

I agree that condo fees seem high. With the economy of scale, tiny areas of outdoor maintenance on a per unit basis, shared areas and the like, I'd think monthly assesments would seem like a bargain. Yet when we shopped around we found the fees to be high.

My home is small and easy to maintain. So far I'm only paying to have a lawn service and that started just this year so we could be away more easily. But even as we choose to have other projects done by others, I'm not anticipating the cost to equal what I'd pay in a condo. And, of course, there will always be small things we'll continue to do ourselves that we don't consider a burden.

One thing is that in a well run condo, a lot may be included that goes well beyond whatever one might spend in his home for grass cutting, snow removal, etc. In a large place it may include a live-in manager. It includes sinking funds for expected longterm expenses-driveway/parking area repaving, water system replacement, roof, etc. It most buildings it will included operation and maintenance of one or more elevators, plus development of reserves for periodic maintenance and eventually repair/replacement of them. It may also include water and sewer, hot water, even heat and/or cooling. Repairs to anything outside your unit's walls are on the condo associations tab. Garage door and security system operation, maintenance and management will be inluded. It may include a pool, tennis courts, meeting rooms, media rooms, gyms, party areas/rooftop grills, etc. There may even be concierge services, part time or 24 hours/day.

In a SFH it is easy to ignore(for a time anyway), self perform, or do without some of these things. Realistically, how many sfh owners could or will accurately plan and reserve for long cycle replacements? Most will ignore them, and try to sell before the bill comes due. But if you want the services, I have never made a comparison where a well run and well regarded condo association was not better and cheaper than what you could do on your own. Caveat-a poorly designed or constructed or managed condo is a disaster.

To me the big divide is between sfh and condo/apt. One can rent a SFH, one can rent an apartment, or one can buy either of these.

I see the decision tree as 1) (SFH or unit in larger complex)->2) (rent or buy). In my case, I do not want a SFH, so next decision is rent or buy. In a stable economy I would strongly prefer renting. However, I do not believe that I am living in a stable economy, so buying would at least lock some part of my housing costs. At the begining, likely 3/4 to 4/5 of my costs would be mortgage and opportunity costs. Later, depending on how long I am around and how inflation/local conditions fare, plus a degree of randomness related to the individual building and events such as earthquakes, I would expect the variable costs to be a much larger fraction of total costs. But I have seen retired people living in close-in neighborhoods only because they bought years ago. They could not afford to buy in these same neighborhoods today.

Ha

 

[DangerMouse]

We bought a condo earlier this year after being long term renters. However, for us it was more an emotional decision rather than financial. We figured we had to have somewhere to live, we could not afford to buy a house in our desired neighbourhood without being a slave to the man for a longer period of time plus the advantage of being able to lock and go will suit our retirement lifestyle.

 

[Nords]

But to pay someone to do the same jobs costs money too (although you clearly have more control over what you do when and can do comparison shopping if you're in your own SFH.)
Has anyone out there ever done a serious comparison of costs?

We have tried to roughly estimate both, and we think the higher cost of maintaining/insuring a home along with having lawnmowing and snow removal done for us, would be more or less comparable to HOA fees. However, that doesn't include any time and aggravation required in arranging for such services.
This week I arranged for my lawn guy to also take care of the bushes, vines, and other plants around my home. This service is more expensive than just a mow. Having no desire to garden at present I think this is a good use for my excess money. No time or aggravation, but then it took several years for me to find a good lawn guy to begin with.

At this point our plan is to lean heavily on paying our grandkids and great-grandkids for their yardwork support.

I agree that many smaller condo associations have a fairly shallow gene pool for the HOA board, let alone the rest of the owners, and you especially don't want to have to be doing your turn in the tank. Things I might have found to be amusing in my 20s as a HOA board member would not be anywhere near as enjoyable today.

 

[youbet]

In a SFH it is easy to ignore(for a time anyway), self perform, or do without some of these things. Realistically, how many sfh owners could or will accurately plan and reserve for long cycle replacements? Most will ignore them, and try to sell before the bill comes due.

Good points Ha. And I agree, it is hard to make a true apples to apples comparison between condo HOA fees and the expenses of maintaining a SFH. You're right, we do self perform, do without or ignore some of the things that HOA fees would pay for in a condo. There are amenities we don't have, lots of routine chores we perform ourselves and maintenance items we find ways to stretch out chronologically. So, perhaps I shouldn't be surprised when condo HOA fees seem so high to us.

Just as a point of reference, a condo which would reasonably replace our modest SFH would be about 1400 sf, have 3 br, 1.5 baths, a large deck or patio with good privacy and indoor parking for 2 cars. Monthly HOA fees for that would probably be in the $500+ range here in the close-in Chicago suburbs. This assumes a "nice" complex. I'd have to chew on that number for a while before I could swallow. But your comments go a long way towards helping me understand.

 

[youbet]

At this point our plan is to lean heavily on paying our grandkids and great-grandkids for their yardwork support.

Just so you know..........

Timing is critical for this plan. The period of time between when the grandkids are too young to run the lawnmower and when they're too busy is about 3 weeks. Be sure to take advantage of it. It goes by in a snap.

 

[Nords]

Timing is critical for this plan. The period of time between when the grandkids are too young to run the lawnmower and when they're too busy is about 3 weeks. Be sure to take advantage of it. It goes by in a snap.

Yeah, good point-- we already screwed up that timing on our own progeny.

What I really need is one tall enough to hold a chainsaw and another one tall enough to reach the hopper of the wood chipper...

 

[ChrisC]

Just as a point of reference, a condo which would reasonably replace our modest SFH would be about 1400 sf, have 3 br, 1.5 baths, a large deck or patio with good privacy and indoor parking for 2 cars. Monthly HOA fees for that would probably be in the $500+ range here in the close-in Chicago suburbs. This assumes a "nice" complex. I'd have to chew on that number for a while before I could swallow. But your comments go a long way towards helping me understand.

That's actually not a bad figure. My niece owns a 2 bdr condo in Chicago, within walking distance of University of Chicago, though it's an older building and a walk-up unit, with no parking; I think her fees are around $260.

I own a 2br 1400 sf condo in close-in DC suburb, a balcony on a higher floor, with one parking space and the fees are around $440. This is a great unit in mixed residential-commercial space. I also own another 2br, 1330 Sf unit in a smaller building, one parking unit and lots of storage space, with fees of $607, in a reportedly more upscale unit.

One thing to keep in mind: HOA fees around here generally include separate assessments for assigned parking and storage spaces in the common areas. And indoor parking spaces in urban areas are generally conveyed separately from the unit itself. For instance, in NYC a parking space might cost $125,000 in a new condo project. The parking spaces in my condos cost $32K and $27K, and the "assessment fees" associated with a parking space in both units is $30 per month. Storage assessments cost $12 in one unit and zero in another.

It's hard to generalize about fees here; a lot depends on the number of units, the type of condo project (high-rise, garden style apartments, etc), the age of the project, parking and other amenties, and the management of the project.

 

[Nodak]

Wow, I've lived in ND for so long I had no idea how expensive it has become in some places. HOA fees of $600 per month? the apartment I'm looking at is 950 sq ft 1 br with den and rents for $715 per month including utilities and parking.

 

[Brat]

I live in a co-op, the "HOA" includes property taxes, heat, water, garbage, reserve for major maintenance, current maintenance, common area utilities, concierge, onsite manager, and basic cable for about $1,200 for 1,640 sq ft 2/2 unit with a very large balcony (bbq, plants, seating), indoor secure parking that could accomodate a huge van, secure storage the size of a garage, in a prime core area. Our electric bill is about $40/mo. I have no complaints.

 

[Nords]

Wow, I've lived in ND for so long I had no idea how expensive it has become in some places. HOA fees of $600 per month? the apartment I'm looking at is 950 sq ft 1 br with den and rents for $715 per month including utilities and parking.

I'm not sure which would be the more traumatic culture shock-- you visiting Hawaii or me visiting ND...

 

[Ken11]

I consider home ownership as one form of portfolio diversification.
If inflation is coming then home equity may perform better than the average stock.
I also like the idea of a lower monthly cash out flow in retirement. (I'm newly retired and still a bit skittish).
However, I agree that a financial analysis could go either way depending on the specific assumptions used.

 

[haha]

One More Reason to Buy

Man taken into custody after standoff at Lake Cushman home - Local News - Seattle, WA - msnbc.com

 

[TomG]

The only correct answer in the 'rent v buy' discussion is that everything is a tradeoff and everyone's situation is different

Everyone accepts that taxes are just an additional cost of home ownership, so not sure if it is a totally new perspective

For myself another big reason to rent is because of how easy it is to not only pay for the walls and roof, but also the stuff inside. With one rent check I have a fully furnished kitchen, refrigerator, microwave, coffee maker, pots and pans, TV, bed frame, desk, chairs, couch, lamp. Even if I am going to live here for five or 10 years, dividing the cost of all that by 60 or 120 months is still significant

 

[Dancer373]

Has anyone moved into or thought about moving into an Active Adult Community? I live in Florida and there are many here of all different sizes. They come with as many or as few amenities/activities as you need.