Rent vs Own...the big difference

[Music Lover]

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Originally Posted by Senator That is exactly why is is difficult to compare renting vs. owning. A renter could have used that same time working more hours at a job, and investing the extra earnings. Or moved to a more modern place. Or moved closer when they got a new job. Or completed a real estate flip (or 25) while they were renting.

I could have worked 10 extra hours to pay someone to install a door or I could have done it myself in 1 hour. I could have also worked an extra 2 or 3 years to afford a more modern place or spent a couple hundred hours at my own pace and not worked those 2 or 3 extra years.

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Most homeowners would have been further ahead by investing an extra $100 a month for 30 years at 7%. Do not confuse the value of your personal real estate flip with home ownership.

I'm not like most...I have solid and extensive DIY skills, I want to own a home, and I enjoy DIY work. It's a hobby that "pays" me quite well once you factor in how much money is saved per hour of work. For people with limited DIY skills or who don't have the desire to do the work the payoff may not be there.

My current renovation has taken about 6 weeks of full time work (spread over 4 months) but has saved me an estimated $25,000 to $30,000. That's a full year of expenses saved for 1.5 months of work that I enjoy.

[Ready-4-ER-at-14]

I had a house that I put a substantial amount of "sweat equity" into as well as had a mortgage for 15-20years. It tripled in value over less than 30 years.
Sounds impressive until you consider that at 7% money doubles in about 10 years. So had I bought an index fund that got 7% annually I would have had 8 times my investment.
Considering I paid property tax and interest which was not all that different than rent for perhaps a smaller place I might have been far ahead to rent.
But.. I only put down 10-20% on the house so it was leveraged money..and the return on any market index would have had to consider additions monthly as we made mortgage payments.

[38Chevy454]

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Originally Posted by Badger Sometimes it doesn't have to do with the money. Sometimes it has to do with being in control of your environment, not having to deal with people above, beside, or below you, being able to make changes according to your whim, having a large outdoor living space, enjoying a garden, or having a garage and workshop. I've lived in college dorms, efficiency apts, large apartment complexes, and houses that I own. I will have to be unable to care for myself before I leave my home. It's HOME and it's mine. Cheers!

This is also how I view it. I absolutely can't stand living in apt/condo or having a landlord that can control aspects of my living. I don't even like living in the crowded city or suburbs. Give me my 2.5 acres out in the country with a modest house and a huge detached garage that I own and I am happy.


I am not sure you can put a simple financial evaluation of the rent vs buy decision. Too many non-financial variables to the equation. In the end, if renting or owning makes you happy, then do it. We do not always do things based purely on maximizing financial return.


I have been a landlord in the past as well. It was a good financial adventure. It also came with some headaches, maintenance and expenses to keep the rentals up; and I believe the comments that owning a rental is like a part time job. For sure the money gained from the rentals did not come from anybody but the renter's fees each month. I benefited from their money, and some tax laws favorable to rental expenses. At this stage of life I am happy to not have the rentals and just deal with my investments in traditional savings type accounts.

[Freedom56]

I guess some people never learned to play Monopoly well. There are those that buy prime real estate (Boardwalk, Park Place) and build and there are those who land on them and pay rent. In the end, who comes out ahead? That game should have reinforced the benefits of property ownership and location, location, location.

[Sunset]

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Originally Posted by RobbieB I agree. I'm a DIY'er and saved a lot doing my own work. I enjoy working on my own house and it's the fastest way to get stuff done when it breaks. And when I replace something I always put in something better than what was there before. SOME Landlords are gonna put in the cheapest crap they can find when they can "getta round toit"

fixed for ya...

[COcheesehead]

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Originally Posted by Freedom56 I guess some people never learned to play Monopoly well. There are those that buy prime real estate (Boardwalk, Park Place) and build and there are those who land on them and pay rent. In the end, who comes out ahead? That game should have reinforced the benefits of property ownership and location, location, location.

Good analogy.

Other than our current home. I also own a commercial building. Single tenant. Invested $75,000 in it in 2010. Today it’s worth about $1.1 million, about $750k of that being my equity. That’s a nice 9 year return and shows the power of leverage.

[Sunset]

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Originally Posted by FREE866 The only thing I'm paying is what the NYC rent guidelines board allows landlords to increase the rent by...usually in the range of 1-3%...some years nothing.....I also get new appliances every time they are needed as well as apartment painted every 3 years..... Been here 25 years and the service has been excellent....toilet breaks? I fill out a work order and it's fixed usually within 2 hours....I like it like that!

Ok, you sold me.
I do think you have a special situation, but it sounds like a great deal, although I do wonder about the NYC price appreciation you have missed out on during the past 25 years.

[Music Lover]

One factor often overlooked when comparing owing and renting is the size of the place. Many people that would buy a 1500 square foot house would never rent a place that big...they might rent an 800 or 900 sq ft apartment instead. When similar size places are compared the numbers will be a lot closer.

So does owning encourage people to buy more house than they really need or does renting encourage people to sacrifice space for value?

[Freedom56]

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Originally Posted by COcheesehead Good analogy. Other than our current home. I also own a commercial building. Single tenant. Invested $75,000 in it in 2010. Today it’s worth about $1.1 million, about $750k of that being my equity. That’s a nice 9 year return and shows the power of leverage.

I bought my first brand new home when I was 25 and still single. My friends were renting and partying. By the time I was 29 I was in my third brand new home (I flipped up to larger homes) and built up a considerable amount of equity. We currently own three properties (all free and clear). What people don't understand is that real estate is a leveraged investment. For example, in 1985, I paid a $2000 deposit for a brand new home that took 7 months to complete with the balance due at closing. During the 7 month period, prices of the same model went up by $14,000. So on paper, that is a phenomenal return on a $2000 deposit that no stock market returns could match. I flipped my first home for a net gain of $28K after living in it for just 7 months. I rolled the equity into a larger home and repeated this process again until the real estate market started to soften so I stayed in the home.

[razztazz]

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Originally Posted by Music Lover One factor often overlooked when comparing owing and renting is the size of the place. Many people that would buy a 1500 square foot house would never rent a place that big...they might rent an 800 or 900 sq ft apartment instead. When similar size places are compared the numbers will be a lot closer. So does owning encourage people to buy more house than they really need or does renting encourage people to sacrifice space for value?

This is where it's at. This is what I was always running into when i was working. If I were to buy something I'd have to buy what's there. By and large/more or less, what everybody else wants to buy in that area. 3 bedroom/2 baths/ big yard etc etc
But if I were to rent, I was single so my general rule was: Where's the cheapest, acceptable, 1 bedroom apartment, closest to work? Always cheaper than buying.

[misshathaway]

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Originally Posted by Badger I've lived in college dorms, efficiency apts, large apartment complexes, and houses that I own. I will have to be unable to care for myself before I leave my home. It's HOME and it's mine.

If your neighborhood gets gentrified like mine did, your house is still the same, but it becomes a little island in a strange, slightly hostile, place. In my case the "town" became an ugly city and the neighborhood became filled with huge characterless light-grey houses.

For me, the sense of home goes beyond the property itself. I lost my home as the demographics changed. After that it was emotionally easy to sell the house.

[jkern]

Growing up and living in the SF Bay Area my whole life the mantra was always buy that first home ASAP (condo,townhouse or SFH) and get into the market (even in the 60's and 70's). The idea was that whatever way the RE market went whether it's up down or sideways, you are in it and can't get priced out over time.

I don't know anyone that regrets buying their home over the long term. Short term purchases can yield very different results.

[razztazz]

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Originally Posted by misshathaway If your neighborhood gets gentrified like mine did, your house is still the same, but it becomes a little island in a strange, slightly hostile, place. In my case the "town" became an ugly city and the neighborhood became filled with huge characterless light-grey houses. For me, the sense of home goes beyond the property itself. I lost my home as the demographics changed. After that it was emotionally easy to sell the house.

So much for owning allowing controlling the environment. My idea of controlling my environment is to dump and run to a better place if necessary and have no or few encumbrances. Not painting the walls.

[Greencheese]

I think the problem here is nobody is factoring in the winners vs losers in real estate. This article below says it so well, the top 20 markets in America cleaned house on job growth and the next 20 did a little better than they proportionately should have. If you bought in one of those markets or live in an area like Southern California which has unparamount weather in the US you were a winner. But what about those who bought in say.... Flint Michigan? That real estate is borderline worthless and nobody with options will likely ever even give that location a thought any time in anyone's lifetime. Or take a look at a place like Chicago, 1 of the largest metropolitan areas in the country but due to fiscal uncertainly has not only not recovered from the 2007 market decline but will likely continue to sink further due to future income/property tax hikes that look unavoidable. Do people in those metropolitans think that buying was a great investment when they're looking at returns of -10% for the past decade, 2% annual property taxes and no positive news on the horizon?

https://www.reuters.com/article/us-u...-idUSKCN1UE13B


I'm all for owning, but let's not pretend that the location of that house makes a huge difference too. For those of us who live in the midwest, real estate has mostly tread water while the coasts continue to show impressive gains. For those who bought in the "best" areas, they've done well and those are the regions that these rent vs buy articles almost always seem to originate from.

[Ready-4-ER-at-14]

Greencheese, my triple was in Chicago, but in a gentrifying area with good local schools and a stable neighborhood. From what I hear from a friend with ties there even some parts of Detroit are doing well.

As with everything else, luck and location, location, location are all factors.
That said I am glad I pulled some money out of the RE market here and moved closer to the burbs. But even here we are up 18% in 3 years. We bought below market and took a little risk as to what problems the RE might have though.

[Koolau]

It's true that there are way too many variables to give a definitive answer to "Rent vs Own." One anecdote from personal experience: Where I live now, if I sold it, I could rent it back for 5% per year. I'm sure I could (over time) make 5% on my money. Complicating this issue is that value and rents have been on an upward spiral. Who knows what rent (or value) will be in 10 years. Also complicating the issue is that HOA dues are currently 1/3 of that 5%!! In short, local rents (while by my traditional standards are "high") are actually "cheap." I already knew this as we rented out a local property for many years. I'm pretty sure we lost a bundle, BUT we preserved our 'place in Paradise' which was our goal. Regrets are for fools.

The best argument for owning (IMO) was presented by Kotlikoff and Burns in their book THE COMING GENERATIONAL STORM. I don't recall everything, but the biggest single point was that rent usually requires income (most often, all or part of which is taxable.)

As always, YMMV.

[Red Badger]

I've always perceived owning our homes as an indulgence. A lot of "my way or the highway" on this thread. So, not gonna debate the financials. We've substantially modified the three homes we've owned because it brings us joy. I build gardens and DW grows great sustenance in them. I build decks and drink beer and wine on them while imparting the trifecta of heat-smoke-time to dead critters.

Along the way, we've had a few lousy neighbors. Between me, the HOA covenants, and the law, we've contained all of them. Besides, I like a good fight.

We'll likely age out of this house in a few years. Arthritis is gaining on DW and has a good start on me. And then, we'll likely move to a different SE city. And do so happily as renters.

[Senator]

Iwonder how many people here that think owning is better than renting, also own rental properties? If owning was so much better, and the renter was getting screwed, the same people advocate owning would also own rentals.

Or how many that advocate owning, also rent. Either hotels, motels or some other vacation rentals. If owning was better, they would buy, not rent.

Renting has it's place, and is very much better than owning many times.

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Originally Posted by Freedom56 I guess some people never learned to play Monopoly well. There are those that buy prime real estate (Boardwalk, Park Place) and build and there are those who land on them and pay rent. In the end, who comes out ahead? That game should have reinforced the benefits of property ownership and location, location, location.

You must own many rentals then?

[misshathaway]

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Originally Posted by razztazz So much for owning allowing controlling the environment. My idea of controlling my environment is to dump and run to a better place if necessary and have no or few encumbrances. Not painting the walls.

Me too. Renter from here on out. Everything including the air bed can fit in the back of my car. I love where I am, but if it changes, I can leave.

However, I have no dog and no family near here. Most people have more constraints.

Also, not the cheapest financial choice. My version of "blow that dough".

[Badger]

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Originally Posted by misshathaway If your neighborhood gets gentrified like mine did, your house is still the same, but it becomes a little island in a strange, slightly hostile, place. In my case the "town" became an ugly city and the neighborhood became filled with huge characterless light-grey houses. For me, the sense of home goes beyond the property itself. I lost my home as the demographics changed. After that it was emotionally easy to sell the house.

There are 26 houses on my street. Counting my house there are 4 left that haven't been knocked down and replaced with a McMansion. So demographics have changed quite a lot. A few neighbors are nice folks and we talk on occasion. The rest pretty much go about with their lives and life is pleasant.



My house is 1500 sq ft. So far my initial "investment" in my painted concrete block house is now 10X what I paid for it 30 years ago. Location plays a big part in that but also the upgraded housing surrounding me. When the time comes and I am moved to a nursing home it will be knocked down like the others. But until then I will enjoy living here. Sorry others have different experiences.



Cheers!