Home vs Rent - Expenses Only

[Whisper9999]

Has anyone seen any decent worksheets on the home vs rent argument? And please keep in mind that I have no desire to be a landlord no matter how much I'd make - that's just not me. I'm strictly interested in minimizing total expenses.

I'd like to find a worksheet that lets you play around "parametrically" with things like mortgage, taxes, insurance, interest on mortgage, %maintanance, 30yr/15yr, % appreciation, rental rate, rate of increase of rent, etc., etc. I could do this myself in a spreadsheet of course, but I was just wondering if something already existed out there.

And for the record, I realize this stuff is all very unpredictable. But I want to play with the numbers enough to where I feel I understand the risks and what to watch for in the market.

I'm all about reasonably minimizing expenses at this point in my life and that's my goal. I'm not that interested in the more "subjective" aspects - at least not for the next 5-10 years.

 

[cute fuzzy bunny]

Google is our friend!

I tried "House buy vs rent worksheet" and got a bunch of pretty good results.

You may not be able to capture the full picture in a spreadsheet like this as its looking at an inception 'buy vs rent' rather than "I now own and am looking to rent or I now rent and am looking to buy". You'd need to add things like moving costs, additional furniture that needed to be bought or extra furniture to be disposed of, longer or shorter commutes, real estate transaction fees, etc.

Also, it can be a very wide decision field. Much like the "mortgage or not" decision. Appreciating or depreciating real estate valuations, asset value at the end of the calculation (and when the 'calculation' 'ends'). For example, some folks consider the full term of a mortgage (15 or 30 years) when doing buy vs rent or pay off vs keep mortgage, when the vast majority of homeowners only stay in a home for 7 years.

It may also be simpler than all this. It might just be that if you want to or tend to move within 3 years, dont have a lot of stuff, dont have a lot of free capital and so forth, you rent. If you have a lot of stuff, tend to stay in one place, have reasonable real estate costs that are probably poised to appreciate, then thats probably an intuitive "buy".

I think at the end of it all though, *what* you buy is most important.

 

[Whisper9999]

A lot of good reminders in the calculations. And, yeah, you're right - I can see getting bogged down in the numbers pretty easily. But I still want to find out under what conditions I can hold my expense to the minimum.

I'll look around. Thx!

 

[Hyperborea]

What I found with a lot of the spreadsheets/calculators was that they wanted you to guess at appreciation rates of the home in making the break even calculation. This is pretty hard to do. They also ignore investment return on the downpayments/closing costs (if you rent and save that) and sometimes on the difference between the monthly ownership costs and rent.

A better way to do this is to turn the calculation around and find out what level of appreciation is required to reach the break even point. Then compare this appreciation rate against historical and what it appears might happen in the market during the time you will own the house. I got this idea from the book "Home Ownership: The American Myth" - http://www.mythbreakers.com/books/homeown.htm I found the book in my local library and it was quite an interesting read. The author also sells his spreadsheets.

I made some pretty simple spreadsheets of my own combined with some hand calculations to get the appreciation rate for break even. I compared buying versus what we were renting at the time and what we would move to if we didn't buy (our rental at the time had some problems and we were going to move anyways but it was cheap).

 

[Whisper9999]

What I found with a lot of the spreadsheets/calculators was that they wanted you to guess at appreciation rates of the home in making the break even calculation.  This is pretty hard to do.  They also ignore investment return on the downpayments/closing costs (if you rent and save that) and sometimes on the difference between the monthly ownership costs and rent.

A better way to do this is to turn the calculation around and find out what level of appreciation is required to reach the break even point.  Then compare this appreciation rate against historical and what it appears might happen in the market during the time you will own the house.  I got this idea from the book "Home Ownership: The American Myth" - http://www.mythbreakers.com/books/homeown.htm  I found the book in my local library and it was quite an interesting read.  The author also sells his spreadsheets.

I made some pretty simple spreadsheets of my own combined with some hand calculations to get the appreciation rate for break even.  I compared buying versus what we were renting at the time and what we would move to if we didn't buy (our rental at the time had some problems and we were going to move anyways but it was cheap).

Thx! The book looks intriguing and your comments are helpful.

Yeah, and maybe I will just make up my own spreadsheet. I was just being lazy I guess and wasn't quite sure how I wanted to analyze it. I've been a home owner twice now and know the housing market in my area pretty well anyway, so I might as well do it myself...

 

[haha]

A better way to do this is to turn the calculation around and find out what level of appreciation is required to reach the break even point.  Then compare this appreciation rate against historical and what it appears might happen in the market during the time you will own the house.

Good suggestion Hyperman. This is clearly a better way. Then you are looking at one parameter- the hurdle rate so to speak of expected appreciation. Although it will be easy to get this wrong, at least you are only being asked to make a one dimensional guess.

Mikey

 

[Whakamole]

If you are buying a house for purely financial reasons, then you are buying a house for the wrong reasons.

 

[Whisper9999]

If you are buying a house for purely financial reasons, then you are buying a house for the wrong reasons.

Can you elaborate? Do you think that a house is clearly the poorer performer financially?

 

[Jarhead*]

If you take leverage (on an owner-occupied home), out of the equation, versus buy or rent, here's what I do:

On invested capital, I have received a little over 7% compounded in last 17 years, (Tax-free, up to $500,000.00. But the return is a lot better than that if you add in the utilitarian cost. I figured out the other day, that it costs us about $6200.00 a year to live here.
Rent for a comparable home would be over $3,000 a month. Even going down to a much smaller home, the rent would be over $1700.00. So, if you add in the cost of rent savings over the years, it is hard for me to make a case for renting, if you plan on being in a home for a long period of time.
But of course, the rate of appreciation, comparable rents, etc. will be location oriented, but you get the idea.
Regards, Jarhead






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[ESRBob]

One thing that people seldom discuss on this front is how you fit into the community. As an ER, I have a lot of time to spend and I spend a lot of it being involved in my community. So owning a home here is a way to put down roots and make a commitment, and the community responds by giving me more responsibility and respect (which helps me be more effective at getting things accomplished).

Renters (at least here) live in a quasi-state of acceptance -- people know they can up and leave and so they are not invited as deeply into community or social engagements as owners. It isn't discrimination, it is simply a fact that renters tend to leave town and people are friendly and welcoming to them, and do get close to them, but at another level, just can't see themselves investing that much in the friendship/relationship (Most of these renters are expatriates, and they always leave after 3-5 years -- this could just be our local experience). If you are running a committee and choosing people for a 3-year term, with possible extensions thereafter, you don't pick the Australian expat you know is leaving in 18 months.

The point is, owning vs renting is not as simple as just doing the math (even if you could get over the hump of the fact that any calculation is going to live or die on unknowable assumptions about future appreciation). Much of the reason for being in ER, I believe, is to have time to fully engage your life and your community. Which means that a house is not just a place to sleep and cook -- it is a part of a community and you a part of it.

Others may disagree and I am fully aware that there are plenty of places to live where there is no community and all of this would sound hollow or naive, but I can't imagine why any ER, with time, resources and choices, would want to live like that. (Maybe it's just me...)

ESRBob

 

[alwaysretired]

Renters (at least here) live in a quasi-state of acceptance -- people know they can up and leave and so they are not invited as deeply into community or social engagements as owners. It isn't discrimination, it is simply a fact that renters tend to ...

Well, fact or not, it IS the people who live there discriminating. It's a "Those people" determination. But I think it's OK anyway

So owning a home here is a way to put down roots and make a commitment, and the community responds by giving me more responsibility and respect (which helps me be more effective at getting things accomplished).

If the community gave me enough money to make buying there cost effective maybe I could afford to take "more responsibility"

Ae you sure you're not just -Buying Love-? Or submitting to other people's requirements?

Much of the reason for being in ER, I believe, is to have time to fully engage your life and your community

I just wanted to not work

Others may disagree and I am fully aware that there are plenty of places to live where there is no community and all of this would sound hollow or naive, but I can't imagine why any ER, with time, resources and choices, would want to live like that

I just wanted to not work and I don't need to buy the -love and acceptance of others- by jumping on the bandwagon of home ownership, "responsibility taking" or whatever other form it takes

 

[alwaysretired]

The fact that you choose to rent should not preclude you from involving yourself in community projects.

I don't think that's what he was saying. The upshot of the housing situation in his community is that if you rent The Buyers hold you suspect and will not LET you take responsibility, and will not LET you be effective.

Now, many renters there are ex -Pats and yes, they will be RTB sooner or later so if you want continuity of operations it wouldnt be wise to choose them. Also, if they are not "of this place" obviously their stake in things is not the same as those who are mired in it, so their prioroities are different.

But if I am retired a USA guy who rents because it better financially for me I would be assigned "Transient Ex-Pat of dubious reliability and suspisciously different salient interests" status and circumscribed because lots of Australians rent there

 

[charlie]

Hey alwaysretired,

It takes a pretty cynical and selfish person to sneer at
someone you don't know by suggesting that he is
"trying to buy love" or "submitting to the requirements of others".

Charlie

 

[gayl]

The upshot of the housing situation in his community is that if you rent. The Buyers hold you suspect and will not LET you take responsibility, and will not LET you be effective. ... if they are not "of this place" obviously their stake in things is not the same as those who are mired in it, so their prioroities are different.

It is obvious by your comments that you are better off emotionally as a renter. Yes, the priorities of those of us who have elected to set down roots in a place (either as a renter or home owner) are different. We have a vested interest in seeing the community flourish and will continue to have that objective for the forseeable future. Therefore, we welcome and encourage all residents to be effective members of our community

 

[Jarhead*]

Well, fact or not, it IS the people who live there discriminating.  It's a "Those people" determination. But I   think it's OK anyway

  If  the  community  gave  me enough money to make  buying  there  cost effective maybe I could afford to  take "more responsibility"

Ae you  sure  you're not just  -Buying Love-? Or   submitting to other  people's  requirements?


I  just wanted to not  work

 

I just wanted to  not work  and I don't need  to buy the -love  and  acceptance of others- by  jumping on the  bandwagon of home  ownership,  "responsibility  taking"  or whatever other  form it takes

Always Retired:

While I somewhat disagreed with ESRBob, on the requirement to best serve the community, would be as a homeowner, his intentions seem honorable and sincere.
You, on the other hand, if you are able to retire, come through as a self-indulgent punk.
In other words, you give early retirement a bad rap. Hope you either grow up, or find another board to spew your self-indulgent garbage on.

 

[haha]

Good gentlemen and gentlewomen,

It's only from people who haven't already posted 100s of times that we can learn different points of view or outlooks. If we jump on them, why should they come back, other than to get occasional bits of factual (or more realistically sometimes factual) information?

I think it is nice to want to join in the community, but not all of us have the same idea of community. As for the idea that home owners are better able to serve, frankly I find it ridiculous. Some very stable communities in NYC or Boston for example have always been predominantly renters.

While it may be true that a frequent motivation for "getting involved" is to protect the old property values, it surely isn't the only one, or necessarily the best one. Thankfully, not everyone would enjoy a community that discriminated against renters. I wold find it repulsive, and want to get the hell out of there ASAP.

If boosterism is one's bag, why not stay employed? One is generally more powerful, and more able to get something done with a corporate connection. This is fundraising 101.

I can't see why you can't quit work for any possible reason, as long as you realize that it can be a risky decision for you and your dependents.

Mikey

 

[cute fuzzy bunny]

I think you're getting the perspective of people who live in very different parts of the world. Having travelled extensively, I've seen the differences betwee places like Manhattan, suburban Boston, Colorado Springs and Berkeley.

Whats so in one place is very much not so in others.

What it appears we're not well oiled on is comprehending that, rather than saying "its not so in my experience, therefore its not so".

And of course, the delivery of that sort of opinion also appears to vary wildly.

 

[alwaysretired]

What it appears we're not well oiled on is comprehending that, rather than saying "its not so in my experience, therefore its not so".

And of course, the delivery of that sort of opinion also appears to vary wildly.

Thanks TH

To ExJH

In other words, you give early retirement a bad rap. Hope you either grow up, or find another board to spew your self-indulgent garbage on

You don't know me so you're not qualified to say. I dont need to buy your GD love or respect either.

Learn about life and people before your spew your unfounded personal attack crap on people you don't even know.

 

[cute fuzzy bunny]

Oh dont thank me so quickly.

I think you had the same issue. I know where ESRBob lives and what he said is probably very true of his area and its nothing more than customary.

While it may not be true where you live, or it may be that you dont buy into that communities standards as being compatible with your own, they are what they are.

Your response to ESRBob seemed to imply that his acceptance of his communities standards and his willingness to integrate himself into it was some sort of sell out. Undesirable.

Jarheads response was a little over the top too, but whatta ya expect from a marine?

As I said once before, when I become your peacemaker, you're in very, very deep trouble. But cant we all just get along?

 

[charlie]

TH will now lead us all in a chorus of "Kum By Ya"

Cheers,

Charlie

 

[cute fuzzy bunny]

Uhh...can we settle on passing around a case of beer?

 

[cute fuzzy bunny]

I think all around we have a good case of the downside of these sorts of conversations...you never know where the motivations, facial expressions, pre-coffee, post cocktail hour, moodiness, and personality inflections start and end.

 

[ESRBob]

Glad to see some genuine exchange of differing opinion! No offense taken, and I know lots of communities are different. A few more shots on this topic:

For anyone on this board who thinks they don't contribute to a community, in my opinion your participation here is a vital and (in many cases) daily commitment to a community -- albeit online -- and for some people would seem to border on part-time employment!

I was deeply affected by having viewed American Beauty a few years back and wake up many mornings saying to myself, how can I do something today to make sure our town never becomes like that place. (ax murderer living next door but no one knew, no community institutions, churches, PTO's whatever)

I know its not everybody's bag and I rsepect that. But if you don't make a long-term commitment to the community, then it makes sense that the community might not make a long-=term commitment back to you.

However, 'renters' are definitely accepted in our town for as much community work as they might want to participate in, --doors just close at the higher levels. (city council, positions on board of directors etc.) Minor stuff in the scheme of things!

Most everything I've done in the community sphere brings plenty of pain along with any bits of 'love'. My conclusion: If you want love, get a dog!

ESRBob

 

[gayl]

To answer the question more directly, using the numbers on MSN Money for last 12 months (actual bill payment more reliable than what I think I pay):

Gardeners: 1420
Insurance: 1591
Remodeling: 12507
Prop Tax: 2128
Total: 17,646

If I didn't get the remodeling bug in retirement: 5139 translates to 428.25 monthly

I do not do my own gardening or remodeling projects.

Cost to rent a similar 4 bedroom home on a 1/3 acre in the SF Bay Area <Walnut Creek>: (yes, I want an office, guest room, and music room in addition to the standard bedroom. And I'm thinking that I need a room for art projects as well.) 2250 - 2995 according to Craigslist.

So I save at least 1821.75 by owning the home ... not counting the appreciation and satisfaction of being able to paint it whatever color I want. No, I don't get a tax write-off as it is fully paid for.