Rent versus Buy

M

MillionaireMommyNextDoor

Dryer sheet aficionado
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Jan 13, 2008
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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?
 
1. Own
2. Still have mortgage
3. Yes
4. Not so much... it's a potential source of investible assests, but then, I'd have to use the income from those assests to live somewhere else. I think of it more as 'cushion' than anything else. Keep in mind that our current house would sell for (I estimate) somewhere between 1.5 and 2.0 times our gross income. Also, not having to pay a monthly rental bill lowers overall monthly bills, which makes it easier to cut back on spending in hard times (once the mortage is paid off, that is).

Looking forward to seeing numbers on this topic! :D
 
My spouse and I are retired and we own a four unit building and live in one of the apartments. There is no mortgage on the building. We tried to sell the building last summer but had two sales fall through. We are debating whether to list it again this spring. Because it is both income property and a place to live, it has figured into our financial planning at least to some extent. By far, the best use of the property is our current use.

If we sell we likely would replace the property with a single family home. Therefore, I don't include the property when trying to calculate survivability of our portfolio. However, I believe net worth mean net worth: the value of all your assets less liabilities. So I include non-income generating assets if I care to add up our net worth.

In our part of the country, it is a close call as to whether to rent or buy. I do like the emotional aspect of owning. I am one who likes to "nest" and make a place my own with my own decorating, etc. That has value to me. I also like the perceived security of owning the dirt I live on. Maybe because I was raised by depression parents who grew up on farms.
 
Own
Mortgage, but trying to pay off asap
No - don't count as net worth
Yes - do count as backup safety plan if I missed anything with regular FIRE plan or in case of a black swan

I do expect the after I reach FIRE, that not having a mortgage will give me more options with respect to taking taxable income from IRAs and possibly converting to Roth over years.
 
1. Own
2. $103k mortgage on property worth $160k
3. Yes
4. We're planning to sell soon and build a home geared toward retirement living.
For us, owning a home is important in ways that go beyond strictly financial
cost-benefit considerations.
 
Martha said:
Any one like to speak to the issue of rent vs. buy?
Click to expand...

I'll bite because this is something I have done the numbers on. I would qualify that the following is based on our personal situation. Whenever I have run the numbers, due to the cost of housing vs the cost of renting it does not make sense to buy. However, being Australian and likely living in Australia in the future, I have to remind you that we do not get a tax deduction for mortgage interest.

For us the true advantage of buying would come once we were 65. Pensions are means-tested in Australia, it has nothing to do with how much you put in. So based on our current portfolio, with 20 years to go, it is unlikely we will qualify for a pension. However, when we were 65 we could buy a house using all our investments, leaving a balance of $300,000 and we would qualify for a full pension. We could also then take out a reverse mortgage to supplement our income if needed. As we don't have any children this strategy would work for our situation.

That said, we are likely going to buy a house in the near future. Even though financially it does not make sense, on an emotional level it is something we want to do. Also we have a hankering to do a renovation project once we have fired. Think that may be due to too many hours watching HGTV. Part of the need to do the renovation and making a place ours is probably due to the fact that we have moved 9 times, living in 4 different countries in the last 14 years.
 
1) Do you rent or own?

Own. Looking to sell and then rent. Renting is for flexability in my life... I've got a farm to buy and I need to move.

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

Heck no.

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

Heck no.

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

Current house does not. The farm does in the sense that I plan on a smaller food budget for fresh produce.
 
1. Own
2. No
3. By definition, yes. But I don't include it in my "retirement account".
4. Not in any special sense.

I was going to point out that Intercst also contends that renting beats purchasing, but all I see over at REHP is Hocobabble...

I intend to stay where I am for the foreseeable future. I like the freedom and the peace and quiet. Plus I like having a garage.

However, every time I have to climb up to the roof, or crawl around through the insulation in the attic, or when I'm perched precariously on a step ladder, with hedge trimmer in hand, trying to get to that unreachable spot on the top of the holly topiary, I wonder how many more years I'm going to want to, or be able to, do that kind of stuff...

As for the math, for shorter periods of, say, a few years, I don't believe inflation would have much effect, so the calculation would be a fairly straightforward, apples-to-apples comparison.
 
 
1. own
2. 30 yr fixed (20% down)
3. No no NO!! - carry it on the expenses side of the ledger.
4. Never - not even scrap value.

heh heh heh - We did own a duplex on the way to ER for 15 years(New Orleans) - made money not a lot but did discover I am NOT a landlord type - my hat is off to those that are - since I knew a couple successful ones. My BIL a mining engineer lost money on the two houses they bought in thirty years - They rent mostly, move a lot, live in strange places - mining being what it is.

Again beware the personal experience of one - I'm a big fan of renting - unless one can afford the frivolous expenses of owning. I paid 21k for a 1200 sq ft fish camp in 79 and 85k for 1100 sq ft in 2005 post Katrina in high cost Missouri - waaay too much for just shelter.

Plus I am jealous of California real estate - have been on and off for thirty years.
 
Last edited:
DangerMouse said:
I would qualify that the following is based on our personal situation. Whenever I have run the numbers, due to the cost of housing vs the cost of renting it does not make sense to buy.
Click to expand...

DangerMouse
What appreciation rate did you use and how did you arrive at that number? I believe that is where most people make an error when running the numbers. Thanks
 
Rent VS Own

We own in the midwest it is cheaper. We found the cheaper homes are cheaper than rent and do not tie up so much money. Homes in the midwest go up very slow our's took about 19 years to double. So the less you put in them the better. The stock market runs circles around homes in the midwest.
 
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.

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

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

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

N/A (Although our last owned home did. We sold it with the intent to downsize our lifestyle, rent, and invest our equity and monthly savings. This helped us reach FIRE.)
 
1. own
2. mortgage on one home I'm selling this year, no mortgage on my long-term home
3. kind of, I consider the equity I'm about to get on the this year's sale part of my net worth even though I don't currently have it in my spreadsheet. Not the permanent one.
4. Only as a final emergency plan, figuring that I can downsize if my plan isn't working, and will see that coming so I don't have to make a quick sale.

One thing I like about renting is that I don't have an owner that could sell the house from under me, forcing me to move once a lease is up. The tradeoff is that I'm a lot more locked in if the neighborhood goes bad or I have some other reason that I really want to move.

I did a rent vs. buy study 5 years ago when I bought the house I've planned all along to sell this year. It came out in favor of buy even for this short term. I looked at my assumptions and I had a more conservative 5% return on investments. My Vanguard profile says my allocation gets 9.8% historically so I think the 10% number you use is not unreasonable. I plugged in 10% into my rent vs. buy spreadsheet and it still comes out that "buy" is better. And since I only put 20% down, I've invested the other 80%, so really I'd need to go back and change my spreadsheet to account for just 20% of my house price getting a 10% return that I don't have tied up in the house. So in the Austin TX area, buying was better, by a pretty good margin.

I went through a similar exercise in Cary, NC in the early 90s. I don't have the numbers from that but also came up with a "buy" decision.
 
rec7 said:
We own in the midwest it is cheaper. We found the cheaper homes are cheaper than rent and do not tie up so much money. Homes in the midwest go up very slow our's took about 19 years to double. So the less you put in them the better. The stock market runs circles around homes in the midwest.
Click to expand...

Again beware a data point of one - but down at the 'old dougnut shop' - retired Business Prof - 1100 sq ft apartment older building good neighborhood - $450 plus utilities(electric/gas) vs me $512 mortgage/taxes/insurance for 1100 sq ft house in the same neighborhood - north of Kansas City.

It will vary by size neighborhood and location but generally the above quote holds true here.

Looks like the spread between rent and buy is way more in the former 'hot RE markets'.

heh heh heh
 
"Looks like the spread between rent and buy is way more in the former 'hot RE markets"

Seems to be that way.
 
1) I own my house
2) Yes, I own it outright, paid off eight years ago
3) Yes, part of my NW
4) Yes, plan to sell and downsize

I rented for 20 years, I never liked having to answer to a decent landlord, or having to live with the uncertainty of seeing my rental sold to a miserable landlord... Owning my house is a personal thing, it reduces stress.
 
But remember you are locked in at $512 his rent in 30 years will not be $450. In fact he might pass you in (I am guessing) 5 years.

unclemick said:
Again beware a data point of one - but down at the 'old dougnut shop' - retired Business Prof - 1100 sq ft apartment older building good neighborhood - $450 plus utilities(electric/gas) vs me $512 mortgage/taxes/insurance for 1100 sq ft house in the same neighborhood - north of Kansas City.

It will vary by size neighborhood and location but generally the above quote holds true here.

Looks like the spread between rent and buy is way more in the former 'hot RE markets'.

heh heh heh
Click to expand...
 
1) Do you rent or own? We own

2) If you own, have you paid off your mortgage?
Yep, we paid off a 20 year mortgage in 13 years. The last payment was made 18 years ago. (Mortgage payments were $198/month) :D

3) Do you count your home into your net worth equation?
Only when I want to see the big numbers and round the net worth to the nearest million. :D

4) Does your home figure into your financial plans during retirement?
Sure does. It's the least expensive place we can live. Taxes and insurance run about $300/month. Upkeep, about $100/month if you diy.
(Current house value ~$300K)

I'm a firm believer in home ownership as I think it adds greatly to the value of a community. Home owners make for a more stable neighborhood as they tend to take much better care of their homes than renters and landlords. Owners also have a vested interest in local schools and government, something not always shared by renters.

I'm also a firm believer that home ownership is not for everyone. Many don't want the responsibility or have the interest in maintaining a home.
 
1. Own
2. Paid off mortgage 9 years ago.
3. No
4 No mortgage, no payment. This has allowed me to put
additional funds into stocks/bonds, so, guess my house
did figure into my retirement financial plans. I have
been retired for two years. Renting would not be a
consideration for me, but, whatever floats your boat.
 
1) currently own two, inherited one is for sale.
2) one for sale is free & clear; mine has small mortgage not paid because (see 4)
3) yes, the houses are a diminishing part of my net worth
4) yes, somewhat pending tomorrow's vote on florida's amendment 1 (vote yes on one, thank you for your support).

if portability passes i might sell when some semblance of market returns & transfer $160k of "save our home" value to a new homestead elsewhere in florida, pay off the mortgage and invest the rest. i will not be terribly dissappointed if it does not pass because i really want to vagabond for the next five to 15 years and i'm not crazy about keeping a house in florida while i'm off on long term travel. after that venture i'd like to spend another 10 years cruising waterways of n. america & the bahamas.

so i guess my plan is either a partial sell-down with small condo or boat or just put all the proceeds into the market renting 6 months here and a year there as i travel the world and try figure out just where it is i am.

at 75 if alzheimer's hasn't gotten me, i was thinking of getting a small apartment but i also like the idea of renting then so as to not be bothered with repairs. i've been trying for two weeks to get someone to help me fix up the inherited house and what a pain. i'm pretty sure i won't want to deal with this type of thing when i'm older.
 
Own outright in retirement

While certainly part of my net worth, it is mostly for the rental equivalent that it provides. I am not planning on cashing out, though I may consider a reverse mortgage many years from now. I am sure renting would be much cheaper, it was cheaper when I bought it, but renting now would be more expensive than my original mortgage. The problem is, rents here increase 5-6% per year long term, more than inflation and more than incomes, and since they have to be paid after tax, it would be impossible to obtain an investment sufficient to reliably pay the rent since equities only offer a 4% safe withdrawal rate. It also allows me to limit property taxes since they are capped and would double if I purchased again.

Now may not be the best time to buy, but with so many foreclosures and repos out there it won't be long until it is.
 
1. Own.
2. No. I'm in the process of refinancing to a somewhat larger amount, shorter term, lower rate. See the PenFed refi thread for details.
3. Yes, at a conservative estimate of FMV. Current mortgage balance listed as a liability. I think this is typical. But I use an adjusted net worth statement for retirement purposes.
4. If you mean am I counting on the equity in the house for part of my retirement funds, no. I do have a sort of simplistic assumption that I will pay off my mortgage the day I retire, so I make an adjustment for the lump sum that will take, as well as reducing my monthly expenses by the interest expense. In reality I may pay it off sooner, or I may carry the mortgage into retirement; haven't decided yet.

2Cor521
 
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