Rent versus Buy

[Martha]

Quote:

Originally Posted by Want2retire I wouldn't want to live in the lower half of a duplex that I own, and rent out the rest. Yuck. For me, being a landlord would be w*rk. My objective is to ER, not to w*rk.

So far, I am the only poster who is doing this with our fourplex. We bought it when my husband was buying rental property and it and the other properties were work for him. We made a number of improvements and now with this property the only rental we own, it is not much work at all. The worst part is removing snow in winter, which we would have to do with a single family home. The only thing that has come up relating to tenants in the last six months was a tenant had a couple of mice and I had to empty the mouse traps because she was too grossed out.

[simple girl]

Quote:

Originally Posted by FUEGO If I was in CA, NYC or other high cost area, I'd probably rent instead of own. Where I currently live, it is approximately the same cost to rent or own a place. Maybe a little more expensive to own if I bought today instead of 5 years ago. But the transaction costs of selling a house and buying a house later don't make sense (realtor fees, redecorating/painting/fixing up, moving expenses, utility connection fees, disruptions to life, etc). If my house were an ETF and buying/selling only cost me $10.95/trade, I'd probably sell it now. In my mind, the financial decision is driven by the market value of houses vs. the market rental rates of a similar dwelling. The emotional decision is multi-faceted and driven by too many factors to list. Ultimately, own vs rent is a personal decision and a location-specific decision.

Nice summary of all the variables involved in this decision, and why there is no one "right" answer for everyone.

[W2R]

Quote:

Originally Posted by Want2retire I wouldn't want to live in the lower half of a duplex that I own, and rent out the rest. Yuck. For me, being a landlord would be w*rk. My objective is to ER, not to w*rk.

Quote:

Originally Posted by Martha So far, I am the only poster who is doing this with our fourplex. We bought it when my husband was buying rental property and it and the other properties were work for him. We made a number of improvements and now with this property the only rental we own, it is not much work at all. The worst part is removing snow in winter, which we would have to do with a single family home. The only thing that has come up relating to tenants in the last six months was a tenant had a couple of mice and I had to empty the mouse traps because she was too grossed out.

Well, I did say "For me, [...]". What one person might regard as w*rk, another would not. I still wouldn't want to do it. Our posts provide a good illustration of that fact.

I didn't realize you were the only poster who had mentioned doing that - - didn't mean to pick on you! Sorry.

[Bestwifeever]

Quote:

Originally Posted by MillionaireMommyNextDoor For those interested in sharing constructive conversation and a polite exchange of thoughts and ideas about this sometimes controversial topic, read this article first: Housing mess makes buying decisions harder - Money - MSNBC.com I'll pose the first questions: 1) Do you rent or own? 2) If you own, have you paid off your mortgage? 3) Do you count your home into your net worth equation? 4) Does your home figure into your financial plans during retirement?

In answer to this post:

1) Own
2) Not yet but will before retiring
3) Absolutely not. And if I chose to rent, I personally would not consider the capital needed to generate the rent as part of my net worth, only any money each year that capital generated in excess of rent (or the loss).
4) I don't understand this question.

[Martha]

No problem W2R. I just wanted to mention that it hasn't been much of any work. We have good, long term tenants, and they even help me out on occasion.

[Khan]

Quote:

1) Do you rent or own?

Own.

Quote:

2) If you own, have you paid off your mortgage?

Yes, several years ago (August this year will be 30 years in the house).

Quote:

3) Do you count your home into your net worth equation?

No.

Quote:

4) Does your home figure into your financial plans during retirement?

Only in the sense that it's cheap to live here. (I retired Dec '04)
=================================================

I grew up on and around small farms, and I like being somewhat in touch with nature.

I have an indoor/outdoor cat (former stray), a clothesline, compost bins, bird feeders, a bird bath, and most of the (small) backyard is garden. I enjoy experimenting with different plants.

The house can't be refitted to be 'senior friendly'; I can only stay here as long as my knees hold up (I'm 57, with hereditary arthritis).

I would greatly miss the plants and animals were I in a condo/apartment.

I don't know what I'll do in the future; perhaps move to that aging hippie compound?

[rs0460a]

1) Do you rent or own?
- Own
2) If you own, have you paid off your mortgage?
- Yes
3) Do you count your home into your net worth equation?
- No
4) Does your home figure into your financial plans during retirement?
- No (only to the extent that we don't plan on "converting" <via HELOC or reverse mortgage> to add to our retirement income. The reason we look at it from a "gross estate net worth" basis is strictly from an estate tax standpoint).

- Ron

[Sandy]

1) own
2) not paid off
3) part of NW but not retirement assets
4) only as a last ditch approach through a reverse mortgage if my planning turns out to be bad.

[haha]

I rent. Not because I think it is better in any absolute sense, but because markets seem to be temporarily soft. I can’t see what is holding up prices in my market.

Is a home part of net worth? It is, just ask a banker. But it is different in many ways from a portfolio which in turn is different from cash.

Does it figure into my retirement?

Yes. I would prefer to own long term, as I believe that the US is an inflationary place, and that well chosen residential real estate is a long term good buy. So mainly I would be buying to protect myself from rent increases.

Also, as a poster above pointed out, if you buy for cash you reduce your AGI which is used in many means testing programs (including Medicare). You also trade a non-protected asset for a protected one.

For pure lifestyle, I prefer renting as I have grown accustomed to low infrastructure demands.

Ha

[ChrisC]

Tell me what these answers are supposed to reveal?

[Bestwifeever]

Rent vs. owning:

Pro rent: I have relatives in their early 70s who sold their home and now rent in retirement--the house sale proceeds are invested separately and earn enough to pay for their apartment. They have ltc policies and no children, hate yardwork, maintenance, etc. For them it makes both financial sense and emotional sense.

Pro owning: DH and I will likely build a small house in retirement on a piece of land we have on a small lake and will spend whatever we get for our current home on it. One of his hobbies is gardening and he will want to see his work progress over the years, God willing, and it makes sense to own the place he will be enjoying. We also see it as a place for our grown children to have (if they want). So for us it makes both financial and emotional sense to own now and in the future. And as someone whose family moved many times while I was growing up, it mattered a lot to me that our children lived in the same house (not putting a value on this for anyone else--our children probably wish we had moved a few times!).

So the rent vs. own issue is the same as the pay-off vs. carrry a mortgage--whatever works for you is best.

[haha]

Quote:

Originally Posted by ChrisC Tell me what these answers are supposed to reveal?

Your Zodiac sign.

[W2R]

Quote:

Originally Posted by ChrisC Tell me what these answers are supposed to reveal?

The One True Path to ER?

Oh well. We have had plenty of "mortgage or no mortgage" threads, and I still love talking about that topic (even though it can get tedious for some others). So, I guess this could be interesting, too.

A poll can sometimes be more helpful (and certainly easier to read), for a thread that is simply asking questions.

[cute fuzzy bunny]

Quote:

Originally Posted by haha Your Zodiac sign.

Also that a lot of people think pretty differently about these matters, they're probably prebaked into our brains from a variety of experiences, that people will select the data that supports their preconceived notions, and that you're pretty unlikely to change anyones mind with different data.

FWIW, I own. I hate the idea of someone else telling me what I can and cant do in the place I live. I want to do things to the house and property that suit me and benefit from the work I do. I want to decide how long I live in a place and want to control my costs of living there. I also have 3 dogs, 3 cats and a 3 year old, so any property I could rent that would allow this menagerie is likely a piece of crap or a ranchy type property thats already been exposed to a lot of pets, smokers, etc. No thanks.

I also like the idea of buying a well priced house in a good growth area thats experienced steady price improvement over the last 50 years.

Of course I include it as part of my net worth. It has both a series of immediate or near immediate liquid value and can be sold. I can rent or mortgage it. I can sell and then rent with the proceeds. Its the largest single item I've purchased, is not a depreciating asset, is an appreciating asset, and has real value. Oh, and every single product for calculating net worth from the original accountants cave wall/ash combination to the modern asset allocation software includes it, as does every standard approach to determining net worth. Seems pretty slam dunk, unless you've got some prior life experiences that prohibit you from thinking that way.

Does it affect my investments? Hell yes! Again, unless you've got some hairball that makes you put the home in a lockbox, the presence of a six figure appreciating asset OUGHT to make you think differently about the rest of your investments. By taking a chunk of my net worth and allocating that to a paid off house, I have severely limited my forced out of pocket expenses. I have a store of value which has appreciated with inflation, and then some. Having made a half million+ in real estate over the last 15 or so years, its also fairly lucrative as an investment. How someone can look at bonds, cash, gold or b33ver cheese and say that has an affect on their investment strategy, yet a huge honking six figure real estate holding doesnt is a mystery to me.

Now, if I didnt know anything about home maintenance and improvement, didnt want to take care of a place, considered the family home some sacred item that couldnt ever be sold, or had some other notions...I can see why renting would appeal or why someone would exclude it from net worth or planning. Seems to me that they're shortchanging themselves and making limited decisions based on their available capabilities, but to each their own.

Any other questions? :

[USK Coastie]

1) Do you rent or own?
- Own
2) If you own, have you paid off your mortgage?
- Yes free and clear when constructed 2004
3) Do you count your home into your net worth equation?
- Yes 20 acres of land with 400 ft of river frontage. They are not making very much waterfront property anymore .
4) Does your home figure into your financial plans during retirement?
- Yes should we need to sell to get equity, unless we do a reverse mortgage instead. Currently we will not need to do this unless the govm't goes broke(er)i.e. no SS payments or military pension.

[free4now]

I rent.

I sold my condo last year at just about the top of the market. Looking at the Schiller housing price graph it's pretty clear to me that while owning was the way to go in the past, that rosy scenario isn't likely to continue into the future at least until prices revert back closer to the mean.

http://graphics8.nytimes.com/images/...aph2.large.gif

Like CFB, I don't consider myself a market timer but sometimes things are just so out of whack that it's clear the future is going to be different from the past. The housing market looks that way to me now. I wouldn't have sold unless I wanted/needed to move anyway though.

I estimate my rent is a little less than half of my landlord's carrying costs for my current place in San Francisco. Of course real estate is local and different areas will have different ratios of rent to owning costs.

[Notmuchlonger]

Would a home be the ultimate hedge verse high or run away inflation?

[haha]

Quote:

Originally Posted by Notmuchlonger Would a home be the ultimate hedge verse high or run away inflation?

"The Ultimate" is a tall order. But it would sure beat not owning a home.

Ha

[CuppaJoe]

Quote:

Originally Posted by MillionaireMommyNextDoor 1) Do you rent or own? Rent. We were homeowners from 1987 to 2003. Now we rent a nice 4 bdrm, 3 full bath, 2 car garage home with a beautiful big yard and a covered patio. It's located in a very nice family neighborhood and is situated across from a huge park with two lakes. We pay $1295 per month in rent and $9/mo. renter's insurance. All repairs, seasonal maintenance, etc. are done promptly by the property mngmt company.

I rent in a 13-unit building where studio apts. now start at $1,950/mo. Never mind what I pay for my rent-controlled digs but rent-control is again being put to the test on the upcoming June ballot; it might disappear state-wide. It's a precarious lifestyle, sometimes; but then it's all about the three L's.

Interesting that you include renter's insurance; I pay about 10.50/mo. but think of it as insurance in case of liability, not so much a housing expense even though in theory it would pay something in some kinds of disasters.

Keep on posting, MMND.

[ChrisC]

Quote:

Originally Posted by haha Your Zodiac sign.

Haha, you are truly one funny guy. I am enjoying the signs these posts reveal about people, but I thought there was some greater inner truth that the OP was seeking. As for me:

1. Own 4 (1 single family house, which was our home for almost 2 decades; 2 condos, renting one and living in the other; 1 4-family apartment bldg which I inherited with my siblings)
3. Mortgage on single family house is paid off; heavy in debt on condos; apartment bldg is paid off.
3. All my assets and liabilities are included in my net worth.
4. No.

We're not viewing our next residence as an investment. We're viewing it as a luxury purchase. We plan to buy the best house we can afford for our living arrangements. I can't see me getting to the end game and delaying any more gratification. Even if it made economic sense to rent, our personal choice is to own and to own something close to our dream house.