Rent vs Own...the big difference

[foxfirev5]

Put me in the lifestyle camp regarding home ownership. At my age everything outside of my retirement portfolio is a lifestyle choice. Rent vs own from a purely financial point of view makes no sense to me at all. Of course I just paid $500 a night to rent a hotel room for a long weekend.��*

 

[dixonge]

If we ever own another home, we'll be much smarter about it. More cash, less loan. Probably not in the U.S. Also probably after we're done traveling.

We will sign our first one-year lease since 2010 this coming January. In spite of the anticipated 12% bump in rent, we'll pay approximately $235/mo for a modern studio apartment in a colonial city in Mexico. You can afford a lot more travel when your rent is that low!

 

[ckelly78z]

I have a 10 acre single family farm that we have owned for 25 years, and which we paid off 5 years ago. I only have "salt of the earth" neighbors about 1/4 mile away in each direction that would give you the shirt off of their own back to help. From my stand point, I can't imagine wanting to rent a place, unless it were a Southern (Winter) getaway for a few months. HOAs, crazy neighbors, excess noise, traffic/sidewalk congestion, crime, will keep me from ever renting a place closer to work, no matter the price, or ammenities.

 

[JDARNELL]

I want to own the smallest thing I can live comfortably if it’s not producing income. As we became empty nesters we turned one of our rentals into a summer place which is located where I have 4 more rentals and sold the mansion. A nice place to crash at when I go check on rentals or just want to sleep in my own bed. Purchased a large cabin in an overnight rental program that ways a nice return after management company cut with them taking care of most stuff. A nice place to hang out during off periods which is when I want to be there anyway.

I now think about helping my boys as they get launched from college. I suspect more real estate when the time is right with them dealing with the routine tasks. Real estate was just another tasks when I was working but now I am not willing to invest to much personal time in it at the moment as I am settling in the beach in Mykinos Greece. I do see it as an inflation hedge and a way to leverage other peoples daily contribution to the man.

 

[220volt]

Depending on the area and your lifestyle, one can make countless “great” arguments for either or.
But one advantage of home ownership over renting is inescapable: The mortgage you lock in stays the same until the end regardless of inflation. While the rent will almost always increase with (or faster) inflation. So there will come the point in time when the rent costs in your area will surpass the mortgage payments, and any extra savings advantage from renting will disappear.

My wife and I passed that point several years ago. Our 15-year mortgage is now at least couple of hundreds of dollars lower than anything we can even attempt to rent. Don’t want to even compare a 30-year mortgage.

 

[Freedom56]

One thing I'm noticing from all the "pro own" posters is that many of them can and like to do all the upkeep required which saves them a boatload. Also, it seems like they are real estate investors that have multiple places which is not what I or some people want to deal with.

Of course a lot of us do our own work. I do my own electrical work, dry wall repairs, most plumbing, hardwood floor installation, cabinet installation, HVAC repairs, appliance repairs, tile installation, masonry repairs and work. When we have a major renovation we become the general contractor. We save a bundle doing that. Yes many of us play monopoly and the one's that bought in hot markets are doing really well. The idea is to own properties that are on the same street as Boardwalk and Park Place.

 

[FREE866]

Of course a lot of us do our own work. I do my own electrical work, dry wall repairs, most plumbing, hardwood floor installation, cabinet installation, HVAC repairs, appliance repairs, tile installation, masonry repairs and work. When we have a major renovation we become the general contractor. We save a bundle doing that. Yes many of us play monopoly and the one's that bought in hot markets are doing really well. The idea is to own properties that are on the same street as Boardwalk and Park Place.

Yeah, having that expertise on all those areas pays off tremendously. I change a lightbulb once in awhile and I consider that a "project"

 

[Music Lover]

One thing I'm noticing from all the "pro own" posters is that many of them can and like to do all the upkeep required which saves them a boatload. Also, it seems like they are real estate investors that have multiple places which is not what I or some people want to deal with.

Obviously the people who like (or at least don't mind) doing those things are more likely to buy a house than those who don't want to bother.

Very early I knew that I wanted to live in a home so I made the effort to learn to as much as I could. In addition many of my friends are DIY capable and some are in skilled trades so they helped me and showed me how to do things.

And it was less like work and more like get together. If someone was building a garage there would be a few people building, the young kids would be running around playing, maybe some older kids helped out doing simple jobs or running stuff up and down the ladder. The old folks sat in lawn chairs making smart aleck comments, and a few others made lunch or ran for supplies.

 

[Retch The Grate]

Every time I've checked the numbers here in the Bay Area, the math has been heavily in favor of renting. the NYT tool gave a break even of around 17 years, which was way more than I felt comfortable with when I first moved out here in 1999. And I did indeed move away from the bay for 3.5 years. Now, I've been around long enough that it would have worked out well to buy, but of course I'd be stuck with whatever place in the Bay I'd bought and the commutes that entailed rather than having been able to move to be closer to work (3 years ago), or back up to the city to make my wife happy (next month, good by 12 minute surface road commute). All in all, I really wish I owned already, because having a locked in mortgage at 20 year ago numbers would be pretty good, but I had no way to know I'd be able to stay here as long as I did, and renting has been way more adaptable to all of my life needs along the way...

 

[Finance Dave]

I am a landlord and we don't put in the "cheapest crap" when we can "get around tuit". As a retired home inspector who has inspected over 1,400 homes; I know what people put in their houses when they do repairs. And we use higher quality materials in our rentals than many people do in the homes they OWN. I make sure that our houses are to a standard that I would be willing to live in if my budget was in the range of our tenants.

Some of you (those who's home is paid off) seem to be leaving out the initial purchase price of the house. There is an opportunity cost of not having spent that $xxx,xxx over the course of your 15-30 year loan...that money could have been invested and earned an income that could be used towards rent.

Property taxes in our area increase to 2.5x if you don't live in the house, as you lose the "homestead" exemption. I bought one rental for $87k that the previous owner (who lived there) paid $285 every six months. I now pay $672 every six months for the same property. This cost gets passed on to the tenant. What I'm trying to say here is that property taxes are "priced in" to the rent at a HIGHER rate than if you lived in the house.

 

[COcheesehead]

Some of you (those who's home is paid off) seem to be leaving out the initial purchase price of the house. There is an opportunity cost of not having spent that $xxx,xxx over the course of your 15-30 year loan...that money could have been invested and earned an income that could be used towards rent.

.

Leverage. It’s your friend in a rising real estate market and can far outpace interest. It enabled us to double our equity in 6 years, cash out and buy our retirement palace for cash.

 

[RobbieB]

The big difference is the down payment. Yeah, that's what you're out to invest. Mortgage similar to rent, HO insurance cheap, although not as cheap as renters, and property taxes.

Back then taxes and interest was all deductible, now not so much.

I'm still glad I bought, thrilled to be re-doing the whole place and looking forward to living in it as long as I can.

 

[retiredtillwepart]

It all Depends......... 38 years in a great house in a great neighborhood in a great city empty nesters 80 years young. Sold at almost peak $$$$. Moved into 2br 2 bath brand new apt. in same area very near great shopping and entertainment. Not having the house eliminated $13K in expenses. House sale gave us a ton cash to fund the $23k rent and only utilities costs much much lower than the the house. It works for us.

 

[tulak]

I’m closing a new place in a month in a HCOL with a large mortgage.

The monthly cost is about a wash for rent vs own, which pushed me into buying. Plus, the right property came on the market, making the choice easy.

I spent some time the other day forecasting my taxes for next year and realized with the higher mortgage, I’ll easily go beyond the standard deduction. This will save me a few thousand in taxes, which is a nice bonus. It makes the choice of owning vs renting a little bit easier.

This is something I’m not sure the nytimes calculator takes into account.

 

[indiajust]

Key missing items: Still no mention of opportunity costs. No ability to move toward opportunity once the bank and house own you.

US has highest commissions and fee structure while stock transactions are now free. Thanks to Fannie and Freddie loans, we all live in government housing.

Being leveraged long real estate in an unstable employment situation is financially foolhardy. Doing so with 2 jobs is more than twice as risky, since the slightest hiccup puts your entire net worth on the line.

How do your local demographics look? If population is dropping, so will housing demand and prices. Is your state and town fiscally solvent, especially for pensions, debt, and government medical costs...? If not, your taxes will go up and impair your asset.

Rent. And buy Real estate via REITs and fractional ownership. Eliminate the personal risks while capturing the mean return. This is not an either/or proposition. It is a both/and.

Once you accumulate enough wealth that the concentrated risk of one property can be sustained, then sell the REITs and reallocate.

 

[COcheesehead]

Key missing items: Still no mention of opportunity costs. No ability to move toward opportunity once the bank and house own you.

US has highest commissions and fee structure while stock transactions are now free. Thanks to Fannie and Freddie loans, we all live in government housing.

Being leveraged long real estate in an unstable employment situation is financially foolhardy. Doing so with 2 jobs is more than twice as risky, since the slightest hiccup puts your entire net worth on the line.

How do your local demographics look? If population is dropping, so will housing demand and prices. Is your state and town fiscally solvent, especially for pensions, debt, and government medical costs...? If not, your taxes will go up and impair your asset.

Rent. And buy Real estate via REITs and fractional ownership. Eliminate the personal risks while capturing the mean return. This is not an either/or proposition. It is a both/and.

Once you accumulate enough wealth that the concentrated risk of one property can be sustained, then sell the REITs and reallocate.

Opportunity costs have been mentioned several times.