Rent or buy: run the numbers.

Interesting article. I think it assumes that the entire country is in a housing bubble, though. I think it also ignores the benefit of living in a house once the mortgage is paid off?
 
maddythebeagle said:
Interesting article. I think it assumes that the entire country is in a housing bubble, though. I think it also ignores the benefit of living in a house once the mortgage is paid off?
Click to expand...
The NYT article does mention the difference between high-cost areas (the coasts) and lower-cost areas (Heartland). But you gotta run the numbers.

Considering that most people move within seven years, the vast majority never get to the "paid off mortgage" stage. Even then with property taxes & maintenance/overhauls in a low-appreciation area it's possible to do better by renting. A more complicated analysis is how much better that mortgage money would have performed in equities over 30 years instead of paying interest on (or being tied up in) what is largely an illiquid depreciating liability. The ability to spreadsheet these relatively straightforward numbers and check one's assumptions is way beyond most wannabe homeowners, and the RE industry gains nothing by educating anyone.

Security is more important to me than saving $$ by renting so it's an emotional decision. But friends of ours are moving from San Diego to Oahu and contemplating renting out their 2BR home for $2500/month (gross rent) instead of selling it for ~$800K. They'll be doing that with a property manager while landlording from two time zones and a five-hour flight away from the situation. Did I mention that they also have two mortgages and a HELOC on the place? And that the city is considering widening the nearby main road to the point where passing trucks would make the house shake? They claim that they're making an unemotional financial decision but they don't believe that they can earn more money per month by putting their equity in a CD, let alone into a more aggressive investment. I don't see much security in risking all that equity for no cashflow and a possible drop in their local RE market.
 
Amusing.

After a brief look here in NW MO - four people plus a dog and cat - ignored my own advice(from prior posts) and bought.

Never bothered to run the numbers. Handcapped equiped(Mom) house with a yard for the dog.

Will play with numbers in later posts.
 
These, alas, are 'current state' financial evaluations. Of course renting looks financially beneficial right after a huge run up in home prices while rents still lag.

With homes selling at 400K+ in my area and the same homes renting for $1000-1200 a month, it seems like a no brainer to sell and rent, excluding the hassles of having a landlord. However, if home prices continue to pace inflation and so do rents, the former is a positive financial situation while the second obviously is not.

A scenario where you cash out and rent and over the next 10 years rents catch up with home prices and continue upward, is big death.

I guess on the other hand if you're in a 'bubble' area and expect a price decline, it might be a good idea. For a while.

Big diff between the coasts/high escalation/bubble areas and middle america where home prices dont move much.
 
Here is my real world information. I'm single and live in Atlanta, GA. I purchased a new house.

6 Years of ownership


237,000 House Basis - Purchase Price - No Mortgage
12,000 Real Estate Taxes - after tax affect
3,000 Home Ins
1,200 Lawn Care
1,800 Home Mtc
1,200 Misc items - Things I forgot

256,200 Subtoatl 1 - Cash Cost

80,603 Opportunity Cost money invested in House
Assume 5% after tax return & reinvest income

1,088 Opportunity Cost of other house costs
Assume 5% after tax return & reinvest income
81,691 Subtotal 2 Opportunity Cost

337,891 Cost of House
Subtotal 1 & Subtotal 2

283,700 Net Money to seller after all closing, commission, etc costs.

(54,191) Total Cost of owning a home

Renting Cost
79,569 Assume 1,200/mo increases 5%/year

25,378 Benefit of owning
 
I guess the bottom line remains "run the numbers" for your particular situation. However, like the article states, it seems only in "bubble" areas (NY, DC, some Florida, CA, HI, etc) is the choice to rent instead of buy a clear choice. Anyone in "the heartlands" (defined as 50+ miles inland?) should still buy instead of rent in general. Assuming you're going to live in the same house for a number of years.
 
I read the Times article the day it was published. Contrary to what nords wrote in his opening post, it does not conclude that renting is better. Sometimes it is and sometimes it isn't. Indeed, it concludes that buying is better when you are going to stay in the home several years. Renting is better if you are going to move in a few years. That has always been the case, so what else is new (or old)?

Maybe I read a different article than what folks here commented on.
 
Read the article this morning and...
I conclude that I may never be able to move to Arizona.
Currently living in western PA. , where housing prices go up about 3 to 5 percent per year, even in this time of the BUBBLE.
So, in relation to much of the country, we're falling behind.
What I need to happen is for the bubble to burst and housing prices in the South and the West to come tumbling down. Not holding my breath.
 
I think it definately is a case by case basis. If I sold now I would have lived free since I bought and walk away with about 40000 in my pockent. A similar house two streets over was for rent the same time I bought this one. The rent was $40 more per month and I would not receive a refund of anything when I move. So in my case it definately is better to buy than rent.
 
razztazz said:
So, what's wrong with Western Pennsylvania?
Click to expand...
Brrrrrrr. You mean the part in the 1970s where the Ohio River froze and the power companies kept a "death watch" on how many days of coal they had left? Surely the power grid is better fueled these days.

Or the snowy, icy winters with road salt accelerating road & vehicle corrosion, leading to legendary potholes and aggravated breakdowns? Maybe there's a better type of asphalt and maybe global warming is improving Jan/Feb.

Or the Aug/Sep heat & humidity, relieved only by the gentle breezes created by the hyperkinetic flapping of the mosquito's & deerfly's wings. But maybe there are better pest controls now.

Perhaps my memories are misted by the haze of two decades and things may be much better now. I haven't been back since the early '80s. Maybe our high school class will have a 30th or 35th reunion...
 
I'd gladly forgo unplugging toilets, killing fireants/termites, chopping crab/nut/dallisgrass...

But I'd hate to give up my garage/workshop...
 
Nords said:
Brrrrrrr. You mean the part in the 1970s where the Ohio River froze and the power companies kept a "death watch" on how many days of coal they had left? Surely the power grid is better fueled these days.

Or the snowy, icy winters with road salt accelerating road & vehicle corrosion, leading to legendary potholes and aggravated breakdowns? Maybe there's a better type of asphalt and maybe global warming is improving Jan/Feb.

Or the Aug/Sep heat & humidity, relieved only by the gentle breezes created by the hyperkinetic flapping of the mosquito's & deerfly's wings. But maybe there are better pest controls now.

Perhaps my memories are misted by the haze of two decades and things may be much better now. I haven't been back since the early '80s. Maybe our high school class will have a 30th or 35th reunion...
Click to expand...

I sort of like the mountains covered with old tires and dead cars you get to drive by. Maybe they caught fire by now.

Good football players though...
 
I saw the NYT article.  The only problem I had with the analysis is that they included an opportunity cost (or implied return) on the down payment but did not include any assumption about home price appreciation.  Unless you use a "risk free" rate of return on the down payment, which I don't think they did, you should probably include some assumption about housing price appreciation.  Even if you only assume housing prices appreciate at the rate of inflation, the levered return on your down payment is pretty high (and tax free).

Unless housing prices crash  :-\
 
This brings up another question? How do people make money off of their rentals when the cost of buying is so much higher than renting in some of these areas? RE doenst sound very easy.
 
maddythebeagle said:
This brings up another question? How do people make money off of their rentals when the cost of buying is so much higher than renting in some of these areas? RE doenst sound very easy.
Click to expand...

They might have bought years ago, and have the property carrying only a small note. Or it may be free and clear. So their cash flow is positive, as long as they don't refinace and take out a large mortgage.

Otherwise, they are speculating on continued rapid appreciation, in spite of negative cash  flow today.

Ha
 
I have a friend who is convinced the bubble is bursting here in SD, he has sold his McMansion for an obscene profit and is renting a similar home for less than his mortgage was. So far he's coming out ahead every month. Even if the market only stays flat and then starts rising again, he could still win if he made enough of a profit investing the windfall (but taxes, always the taxes to figure). Still, he's got a daughter almost the same age as mine, that's some mental fortitude.
 
My own scenario is a sell, go on vacation for a long time, then rent and wait the market out.

We Retired, then sold our home in South Orange County California for just under $1m

We went sailing for 3 years. House went up after we sold it about $100k, (No Housing Costs or headaches for 3 years, Priceless)

We returned and visited the family for a few months in Canada.

We rented a 3 bed 2.5 bath condo, on a river in North East Florida for 9 months, for $800 pm, including Electricity, (No gas on property), Cable TV, and High speed Internet. We pay phone and maintain the place well for the owners, and look after their car etc. (We are good Renters and they know it). I see no point in buying right now as long as we get this type of deal. I will try to get a years extension on the lease if possible.

SWR
 
W. Pa is beautiful about 9 months of the year...it's the 3 months of winter that I hate.
Old tires and dead cars ? Don't see them around here, you must be thinking of somewhere else.
Pot holes, YES, big problem in the winter.
August humidity, yes, but most of the country has humidity... that's one reason I like AZ, no humidity.
 
AZ gets hot and humid during the July -August Monsoon, where the wind picks up the moisture from the Gulf of California and brings it over the lower part of the state.  Other wise it stays pretty dry (hot summers, warm winters).

I'd bet you can find an affordable home here:

http://www.azcentral.com/rre/rre_sub_searchallhomes.html

Good Luck 8)
 
Laurence said:
I have a friend who is convinced the bubble is bursting here in SD, he has sold his McMansion for an obscene profit and is renting a similar home for less than his mortgage was.  So far he's coming out ahead every month.  Even if the market only stays flat and then starts rising again, he could still win if he made enough of a profit investing the windfall (but taxes, always the taxes to figure).  Still, he's got a daughter almost the same age as mine, that's some mental fortitude.
Click to expand...

Risky business trying to time the housing market.  I hope his landlord doesn't come to his senses and sell the property out from under him.

A colleague of mine is also convinced that the real estate market in NYC is peaking and sold his condo . . . in 1999!  Prices have doubled again (at least) and the hefty gain he realized isn't buying much real estate these days. 

Sometimes, in situations like this, people can be too clever for their own good.  I worried a lot about housing prices when I bought my place but now could care less.  I have to live somewhere.  If housing prices go up, my property should generally track the market and keep my real estate purchasing power more or less constant.  If prices go down, its the same thing only my non-real estate net worth buys more property - which suits me just fine.
 
Ya, his plan is definitely not for me. Very good chance we'll stay right where we are for a long time.
 
unclemick2 said:
Amusing.

After a brief look here in NW MO - four people plus a dog and cat - ignored my own advice(from prior posts) and bought.

Never bothered to run the numbers. Handcapped equiped(Mom) house with a yard for the dog.

Will play with numbers in later posts.
Click to expand...

I kind of did the same thing. Renting had appeal, but with a smoker and 4 dogs.................well, there just wasn't much to be had. I am very happy
now that we bought instead, even though I have not crunched the
numbers lately.

JG
 
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