Rent versus Buy

[boont]

I came of age in San Francisco in the 1970's. People were trying to tell me then, that you shouldn't buy real estate because it was too expensive and it didn't cash flow. There were fools in San Francisco then, and there are fools there now. What followed was one of the greatest advances in asset prices in recent history.

In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says...

"Pacific Heights Victorian Apartments. 4 story frame Victorian, very nicely converted into 5 beautiful apartments, 2 studios, 1 large 3 room apartment, and 2 very large 4 or 5 room, 1 bedroom flats. Several of the apartments have bay views, fireplaces, and garden access, most are bright and cheerful, and 2 have decks. This is a charming San Francisco Pacific Heights Victorian in a prime rental area. Out of town seller. Price $130,000"

You can easily guess what this property is worth today, but you would miss the whole story. At the time the flats rented for $343 and $281 and the other three units for under $150 each. The rents have gone up a bit as you might imagine, but prop 13 froze the taxes and the first many years accelerated depreciation was allowed.

Now these geniuses are still giving advice. Good luck following it.

To answer the question...

3 homes

One paid for years ago, one being paid by current tenant, the other with a small mortgage.

When counting yes.

No financial plans. Living life.

[Zathras]

1) Do you rent or own?
Own

2) If you own, have you paid off your mortgage?
No, just bought our retirement home, but I do plan to pay it off early.

3) Do you count your home into your net worth equation?
Not for purposes of personal planning. I do for purposes of bank or other technical documentation.

4) Does your home figure into your financial plans during retirement?
Not as a source of income, we plan to live here during retirement so there will be expenses to plan for.

5)

Quote:

Originally Posted by haha Your Zodiac sign.

Pisces

We love having a home and yard which we can shape to our own personalities. Not needing to worry about an owner selling our dwelling out from under us. Being free to paint the walls (or knock them out!) as we wish, when we wish. Getting to know neighbors and realizing they will typically be around years rather than months.

I understand owning isn't for everyone, but it is definately for us

[kaudrey]

1) Do you rent or own?

Own

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

Not yet, but I plan to before I retire, whether I am in this place or a different one.

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

Not for purposes of figuring out how much I need to retire.

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

In the sense of this: I plan to own a home, somewhere, when I retire. The home will not have a mortgage on it. Therefore, I won't have a big mortgage/rent expense to factor into my yearly budget.

[Zoocat]

Quote:

Originally Posted by travelover 1) I struggle with this whole discussion because, for me, a home is so much more than a place to eat and sleep. So, for me, it would be like trying to decide whether it is cheaper to eat at McDonald's or your own home cooked meal - not a clean comparison.

Exactly. I can afford my home and so even though I'm sure that renting in my area would save me money, there's no way I'd compromise my quality of life for an extra profit. Another aspect to rent vs. own is that I have a large dog. Renting with a dog is a sketchy proposition. The last condo I rented hadn't been updated in probably forty years. Not many landlords want to rent to me even though my dog is absolutely perfect.

I'm surprised that this discussion has continued so long. While I'm sure it's worthwhile for the OP, it seems sort of elementary for this board. In other words, I'd bet most of us have taken RE 101 before.

[haha]

Quote:

Originally Posted by boont I came of age in San Francisco in the 1970's. People were trying to tell me then, that you shouldn't buy real estate because it was too expensive and it didn't cash flow. There were fools in San Francisco then, and there are fools there now. What followed was one of the greatest advances in asset prices in recent history. In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says... "Pacific Heights Victorian Apartments. 4 story frame Victorian, very nicely converted into 5 beautiful apartments, 2 studios, 1 large 3 room apartment, and 2 very large 4 or 5 room, 1 bedroom flats. Several of the apartments have bay views, fireplaces, and garden access, most are bright and cheerful, and 2 have decks. This is a charming San Francisco Pacific Heights Victorian in a prime rental area. Out of town seller. Price $130,000"

Doh! You would have to mention that! I was there, I woulda, coulda, shoulda. But I was too dumba. Or too stoneda. Or wanted to be a rock star. I can't remember exactly which impediment messed me up.

Ha

[CuppaJoe]

Quote:

Originally Posted by boont In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says...

Is that on landfill or bedrock? It's hard for a potential renter to check but it may be in or near what was once Washwomen's lagoon.

[Rich_by_the_Bay]

So if I am reading all this correctly, as far as advice or strategies, we have:

• Rent v. Own: depends
• 100% Equities: depends
• Buy and hold v. tactical investment scheme: depends

The things everyone does seem to agree on: start early, LBYM. No news there. And as far as how to handle your investments and retirement planning: depends.

[honobob]

Quote:

Originally Posted by boont In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says... "Pacific Heights Victorian Apartments. 4 story frame Victorian, very nicely converted into 5 beautiful apartments, 2 studios, 1 large 3 room apartment, and 2 very large 4 or 5 room, 1 bedroom flats. Several of the apartments have bay views, fireplaces, and garden access, most are bright and cheerful, and 2 have decks. This is a charming San Francisco Pacific Heights Victorian in a prime rental area. Out of town seller. Price $130,000"

2734 Buchanan in the same neighborhood, only 2 units and 1200 sf smaller sold for $5,100,000 in 2005. But if they put their 20% downpayment in 1973 ($26,000 times 10% market returns) they'd have over $660,000.
Nevermind!

[calmloki]

1) Do you rent or own? Own our home and a buncha rentals.
2) If you own, have you paid off your mortgage? Did, but borrowed against it to pay off more expensive rental commercial loans.
3) Do you count your home into your net worth equation? O yeah - positive and negative.
4) Does your home figure into your financial plans during retirement? Some dwelling does.

I think about renting sometimes, but i'm the best landlord i know, and if i get out of the business.... We are off to look at a 21 unit place that includes a 2200' main house overlooking a stream, next to a park. No way it's going to cash flow as is with the current management company, not at all sure i want to sign on for more, though if we peddled some of the other units it would be local work...

[FinanceDude]

Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

[rgarling]

Quote:

Originally Posted by FinanceDude Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

yes that is too nitpicky, and now, on to a related question:

Why is it that some people don't consider their home part of their net worth?

[W2R]

Quote:

Originally Posted by rgarling yes that is too nitpicky, and now, on to a related question: Why is it that some people don't consider their home part of their net worth?

I have an even more fundamental question. What possible use is there for a computed net worth, other than bragging about it on a message board, or musing about it and marveling over my extravagant success in life thus far? So far, I have found no substantive, vital use for knowing my net worth at all.

The size of my portfolio seems more useful in my computations than a figure for my theoretical net worth. It's not like I'm going to hold a yard sale and get rid of every asset I own.

[Notmuchlonger]

Quote:

Originally Posted by FinanceDude Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

I know you know the answer to your own question

[Marquette]

Quote:

Originally Posted by rgarling Why is it that some people don't consider their home part of their net worth?

Because, if I am lucky enough to sell it, I will break even with my mortgage after fees and taxes.

[Rich_by_the_Bay]

The home equity and net worth issue comes up here from time to time. IIRC, the consensus most often emerging from those discussions is:

Yes, from an estate and accounting perspective your home equity counts and is traditionally part of net worth.

From a planning perspective, it is often assumed that until/unless you determine to sell, reverse, or refinance your home, it is not fruitful to include it (you'll always need a house, mortgage payment are accounted for under expenses, etc).

In my own planning, I ignore home equity until a projected downsizing which will free up the balance for general investment. Firecalc handles that just fine, by the way.

[RunningBum]

Quote:

Originally Posted by rgarling Why is it that some people don't consider their home part of their net worth?

I took the question to mean do you use it in your SWR calculation.

I don't, because I don't plan to liquidate it before I die.

My mindset is so much attuned right now to how much do I need to accumulate before I can safely retire, that I'm just not thinking of my home as an asset.

I do think of it as a safety net, in case the plan doesn't work. And it does affect my aggressiveness in investing in equities, because I do have the safety net.

And of course I keep in mind in my budget that since it's paid off, my housing expenses are limited to taxes and upkeep, not mortgage or rent.

Yeah, once in awhile if I think of my total net worth, I include it. And I'm behind in my estate planning, and definitely will consider it there.

But basically it's just something I have that I don't plan to sell or replace, so it really doesn't matter what it's worth in many respects.

[brewer12345]

Quote:

Originally Posted by FinanceDude Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

Congrats: you've been trolled/ spammed/spamtrolled.

[REWahoo]

Let's not be too hasty here. MMND may not have posted today but she's been looking at this thread.

[twaddle]

Best entertainment in months. I hope she comes back.

[brewer12345]

Quote:

Originally Posted by REWahoo Let's not be too hasty here. MMND may not have posted today but she's been looking at this thread.

Perhaps. Spamtroll kind of works, though.