Rent vs Buy

[ER-Chuck]

I have beening think about renting vs buying when I have the funds to buy a house free and clear.

Assumptions:
I would buy a condo and not do the outside maintenance.

I current rent for $790 a mo
The condo I would be looking at start around $135000 for what I am renting today. The fees with having a condo in the area is taxs around $2400 to $2800. The condo fee as low as $125 and normally around $150. The condo would be larger and cost more for heating. My current place has free heat or included with rent. I live in Wisconsin where heating bills can be over $300 for houses here.

So I would assume there is about a $500 cost a month to pay taxes, condo fees and addition utility's.

The net additional I am paying vs have a place free and clear is $290.
If I don't buy the house now I can invest it and get a return on the money. A simply rule that your investment can double in 10 years. That would make the $135000 to about $270000.

Also did a rent versus buy calculate website and said my breakeven point with my current rent vs financing buying it would be 14 years or the 1st 14 years renting is less than buying.

Let me know if you see anything wrong with my logical thinking renting is better for me at this point in my life.

 

[Meadbh]

Deleted

 

[ER-Chuck]

I am years from early retiring but trying to plan an early retirement now. I am currently single at this time.

Sent from my D6503 using Early Retirement Forum mobile app

 

[Brat]

The NY Times had/has a rent v buy calculator so you can always give that a spin. Were I you I would continue to rent.

Condos do not appreciate at the same rate as single family dwellings except for cities such as NYC and SFO. Add to that the fact that some condo associations are not well managed or have inadequate reserves.. you would need to find a jewel in a pile of thorns.

As a renter you can make changes in your housing arrangements much cheaper than if you owned a house or condo. You could marry, or your job location change - no need to sell your residence. Yes, you might pay something to break your lease but that price pales in comparison to the transaction costs of a real estate sale.

My opinion is worth what you paid for it.

 

[daylatedollarshort]

Fourteen years is a pretty long payback period. Renting might make the most sense for you.

 

[jim584672]

My logic for buying a Condo for cash before I retired:

Control of where I live
I was kicked out of a rental at a very bad time and it was major pain to move. Hate the feeling of not knowing from one day to the next if some landlord will kick me out on a whim.

Containment of expenses
I pay taxes and maintenance which may go up. But theses will go up a lot less than a hot rental market which just keeps going up year after year.

Phantom interest / Eligibility for ACA subsidies
The cost to rent a comprable unit in my area is $1,500 a month. Maintenance and taxes are $545. So I am getting a $945 a month ($1,500-$545) return on my investment. This phantom interest works out to 6.3% tax free a year of what I paid. The alternative is to invest the money and pay $1,500 for a rental. The investment would be taxable, and would have to be > 6.3% after taxes to make sense, and would greatly reduce or eliminate my ACA subsidies.

Capital gains exclusion on real estate
Real estate has a $250,000 capital gains exclusion which is super nice.

Investment hedge against inflation
The investment is also considered to be a part of my portfolio.

Protections afforded homeowners for estate planning
Especially relating to protections for spouses and children for programs like Medicaid.

Don't have to worry about cutting grass, shoveling snow, or heating bills
Included in the maintenance.

Privacy concerns
Landlords have the habit of getting in your business. Fire the landlord by buying.

 

[Brat]

I understand your reasoning. I live in a co-op and have friends live in condos so I think I am qualified to talk about the advantages and disadvantages of that lifestyle. I expect to go out of my apartment in a pine box, so to speak.

You really need to dig deep and study any building/development you are considering. Just because a building is new doesn't mean that it was well constructed. In many ways an older building with substantial reserves will be a smarter buy. Condition, condition, condition because a re-roof and a paint job can deplete that reserve in 12 months and you are facing a special assessment. In our area the big money issues involve the building envelope. The thought of elevator replacement sends shivers up my spine.

Pay attention to sound transmission and whether or not the CC&Rs permit pianos (an issue in my building at the moment).

The rule on rentals can change, don't buy a condo counting on your ability to rent it later. A building with a lot of rentals often have issues between residents.

Read ALL communications with the Board over at least 2 years, not just Board minutes. That will give you a better picture of what the residents are thinking. Get a copy of the Reserve Study, current balance in reserve account, planned work in the next year which will tap the reserve account, annual budget. Bylaws, CC&Rs. Don't just gather paper, study it all.

If you are still interested in that type of housing I suggest you start looking at condo/co-op developments that have units of a size that would work for you long term. Once you have that list visit the units on the market and start asking questions, look at the condition of not just the unit but the building with a critical eye. If building permits are on line look at the permits that have been issued for the BUILDING you are considering (not just the unit offered).

Some associations have a control culture, others are live and let live. Neither are good. You want reasonable enforcement of the condo rules.

Small hoa's vs larger: keep in mind the fact that a small association can be taken over by a clique. HOAs are an exercise of self government. Be prepared to volunteer for committees or on the Board. If you think politics at the local or Federal level can get nasty... HOAs are no different.

 

[UnrealizedPotential]

Ah the old rent vs buy. Like so many things in life I think it just depends. For myself, I bought, but I may feel differently in another place in another time.

 

[haha]

My logic for buying a Condo for cash before I retired:

Control of where I live
I was kicked out of a rental at a very bad time and it was major pain to move. Hate the feeling of not knowing from one day to the next if some landlord will kick me out on a whim.

Containment of expenses
I pay taxes and maintenance which may go up. But theses will go up a lot less than a hot rental market which just keeps going up year after year.

Phantom interest / Eligibility for ACA subsidies
The cost to rent a comprable unit in my area is $1,500 a month. Maintenance and taxes are $545. So I am getting a $945 a month ($1,500-$545) return on my investment. This phantom interest works out to 6.3% tax free a year of what I paid. The alternative is to invest the money and pay $1,500 for a rental. The investment would be taxable, and would have to be > 6.3% after taxes to make sense, and would greatly reduce or eliminate my ACA subsidies.

Capital gains exclusion on real estate
Real estate has a $250,000 capital gains exclusion which is super nice.

Investment hedge against inflation
The investment is also considered to be a part of my portfolio.

Protections afforded homeowners for estate planning
Especially relating to protections for spouses and children for programs like Medicaid.

Don't have to worry about cutting grass, shoveling snow, or heating bills
Included in the maintenance.

Privacy concerns
Landlords have the habit of getting in your business. Fire the landlord by buying.

These are my reasons also except your last one. IMO apartment managers are usually quite a bit more skilled and responsive than condo boards, although in a large reasonably upscale condo with onsite management that is perhaps not the case.

My main reason was that I foresaw rapidly rising rents in my area and didn't want top find myself paying $1750 for a one bedroom in the area where I like to live. Another thing I really like is attractive landscaping that I don't have to feel guilty about neglecting every time I walk outside.

However there are important offsetting downsides. I look at apartment ownership and management as functions that usually are more efficient when combined, than when disbursed as in a condo. You can always get better apartment management by paying more, because people that have a choice cannot be pushed around so easily, and they usually present fewer problems to the manager. After all, the manager or his owner ordinarily do not desire a rising vacancy rate.

Ha

 

[jim584672]

The rule on rentals can change, don't buy a condo counting on your ability to rent it later. A building with a lot of rentals often have issues between residents.

My condo board made proposals to limit the ability to rent units. I vigorously opposed the amendments since I want the option to rent my unit out if needed. Other owners with renters also opposed it as well. It failed since it needed a 2/3 majority of all owners. Something to consider about condos.

 

[jim584672]

These are my reasons also except your last one. IMO apartment managers are usually quite a bit more skilled and responsive than condo boards, although in a large reasonably upscale condo with onsite management that is perhaps not the case.

Ha

Where I live the rentals are mostly all top floors or basements of private houses. Very few apartment complexes. Mostly the landlords live in the house. That is just too close for me.