Rent vs Own...the big difference

[FREE866]

Can this possibly be a purely economic decision? I have trouble imagining such a scenario....

true...house ownership allows for possibly great memories, bonding with neighbors, pride of owning a house, etc

 

[FREE866]

And if the landlord takes a loan to cover those costs, you're paying the interest on the loan as well. Generally landlords do not operate as charities, and any money-losing properties eventually see a decline in maintenance.

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!

 

[gerntz]

Housing has never been a significant factor in our assets or costs, so this doesn't matter.

 

[razztazz]

true...house ownership allows for possibly great memories, bonding with neighbors, pride of owning a house, etc

I've experienced all these in apartments and lived in houses in small towns and city row homes and nobody knew each from the time they moved in till the time they moved out. Nothing more than an occasional wave and a Hi, howya doin'"


The dwellings and buildings don't know from anybody

 

[HI Bill]

I rented an apartment in Maui for $700 per month. At the time, condo prices were dirt cheap, and it made sense. Still, they were so cheap, that I bought, and my costs went up to $900, including association and taxes. Five years later, I sold, and cleared $100K profit, tax-free. All for a $20K down payment, and a place to live, that I could remodel, and make my own. It was a bit of work, but well worth it.

There are so many variables. Taxes, maintenance, upkeep, etc. There are trade-offs everywhere. For me, owning, means I can never be evicted, can remodel to my taste, and can customize my home to my tastes. It is MY home. Eventually, it will be paid off (15, 30 years). A renter will rent forever. Rents go up, and one has no control over those increases. But, in some areas, where real estate and property taxes are expensive, or one is to live there short term, it makes sense to rent. I rented in Monterey, and I should have bought a place. But I didn't know I could have made another $150K in just 16 months!

A good argument for real estate is leverage. Put down 20%, get appreciation (or loss), on the purchase price. Anyway, there's no right answer for everyone, and everywhere. But both sides do seem to 'game' the costs/profits associated with either decision, IMHO.

 

[COcheesehead]

I've experienced all these in apartments and lived in houses in small towns and city row homes and nobody knew each from the time they moved in till the time they moved out. Nothing more than an occasional wave and a Hi, howya doin'"


The dwellings and buildings don't know from anybody

Kinda sad. We’ve made great friends in every neighborhood we lived in. We participated in wine clubs and dinner clubs. Someone needs to take the first step.

 

[Music Lover]

ok.....That's still ~$7,000 per year .....$7,000 put into the S and P 500 20 years ago is worth ~$400,000 adjusted for inflation.....that's pretty sizable....


Everyones situation is different, but for me choosing renting allowed me to have my money invested and ultimately allowed me to ER.

But you have to live somewhere and rent for a suitable place was $500 a month 20 years ago ($1100 now) so I never would have had $7000 "extra" to invest.

 

[Senator]

And if the landlord takes a loan to cover those costs, you're paying the interest on the loan as well. Generally landlords do not operate as charities, and any money-losing properties eventually see a decline in maintenance.

A Landlord can only charge market rates. Regardless of what types of loans are on the property.

If being a landlord was so easy to profitable, everyone would do it. Unfortunately, there is such a thing as a landlord horror story. And landlords do indeed lose money. All the time. And please do not say that Landlords do not operate as a charity, many posters here chastised me because I evicted a single parent stage-4 cancer victim with juvenile kids. They are indeed running a charity and wanted me to.

And if you think all you have to do is screen tenants, many cities have passed paws against rejecting applicants and even against evicting them until they are at least two months behind in rent.

If Cities were as tough on homeowners as they are n landlords, no one would buy a home.

 

[tulak]

I just made the choice to buy instead of rent. Why?

The location is perfect, I can update the place to my liking, and I don't have to worry about somebody else dictating the terms of my occupancy.

In my case, the numbers showed that buying is probably a better deal, but it might not work out that way. One thing I realized is that it doesn't take much difference in investment return vs home growth rate to drastically alter which is a better deal. To the point where I think it's somewhat meaningless.

But regarding the original article, yeah, there's a lot of funky math out there regarding rent vs own. My opinion: run the numbers in your case, figure out what your goals are, and then do what makes the most sense.

 

[Senator]

I just made the choice to buy instead of rent. Why?

The location is perfect, I can update the place to my liking, and I don't have to worry about somebody else dictating the terms of my occupancy.

In my case, the numbers showed that buying is probably a better deal, but it might not work out that way. One thing I realized is that it doesn't take much difference in investment return vs home growth rate to drastically alter which is a better deal. To the point where I think it's somewhat meaningless.

But regarding the original article, yeah, there's a lot of funky math out there regarding rent vs own. My opinion: run the numbers in your case, figure out what your goals are, and then do what makes the most sense.

The main way buying works out is if you are able to take the 'happy path'. Property appreciates. You do not move. Your direct neighbors behave. Your maintenance doesn't get out of control. You put in a lot of effort to keep the yard mowed and clean.

Factor in a new number that is the result of paying for every fix and mowing the lawn.

 

[Senator]

My yearly maintenance is under $1000 averaged over the last 20 years. That includes new doors, new windows, a new kitchen, and a new furnace. Utilities, taxes, insurance etc are about $500 a month.

Who put in the doors and windows? An installed window is typically $1,000+. A door even higher. A furnace is $4K+. A kitchen $15K+.

Anyone can make the numbers work towards owning, if you get free labor. A renter doesn't pay for those things.

 

[donheff]

Honestly, I wouldn't even know where to begin, to do a break even analysis on whether I'd be better renting or buying. About the only calculations I can think of is that it cost me about $175,000 up front to get into my place, and it probably costs about $3,000/mo, plus utilities. So, if my place could rent for about $3000 per month, those up-front costs would have covered about 58 months.

the article points out that your $175k up front leverages 5 times that much in total value that is increasing at over 3% per year. That’s initially over 15% declining as the principal is paid off. In addition to the direct comparison of rental cost vs mortgage/tax/maintenance cost you need to take into account those leveraged returns.

 

[CardsFan]

The main way buying works out is if you are able to take the 'happy path'. Property appreciates. You do not move. Your direct neighbors behave. Your maintenance doesn't get out of control. You put in a lot of effort to keep the yard mowed and clean.

Factor in a new number that is the result of paying for every fix and mowing the lawn.

I guess we took the "happy path". First house $50k with a $33k mortgage (at 11.74%, 1981). Second house, rolled in the proceeds, $50k mortgage. third house, new construction, paid cash for the property ($30k), new mortgage $60k. sold last house for $375k, bought condo for $160k, pocketed the difference.

In fairness, this was over the course of 35 years.

Basically, we were lucky, but we did choose locations that were in demand, so not all luck.

 

[Music Lover]

The main way buying works out is if you are able to take the 'happy path'. Property appreciates. You do not move. Your direct neighbors behave. Your maintenance doesn't get out of control. You put in a lot of effort to keep the yard mowed and clean.

Factor in a new number that is the result of paying for every fix and mowing the lawn.

People with modest incomes who want to own homes should know how and not mind doing regular maintenance. Every part of your home has a life span and eventually almost everything will eventually have to be replaced or repaired.

It's a lifestyle choice and I decided when I was young that the hassles and expenses that come with owning a maintaining a home was worth it for me. At the time buying was about the same or just slightly more than renting but that wasn't a factor...owning my own home was the goal.

 

[Music Lover]

Who put in the doors and windows? An installed window is typically $1,000+. A door even higher. A furnace is $4K+. A kitchen $15K+.

Anyone can make the numbers work towards owning, if you get free labor. A renter doesn't pay for those things.

I installed the windows and doors myself and helped a contractor friend install the furnace. I paid his wholesale cost for the furnace plus for some ducting as I moved it to a better location...probably $1200 all in.

Windows and doors are easy to install, half hour or so each. I did pay a concrete cutting company $800 to cut holes in the foundation when I wanted extra basement windows. I followed right behind him and installed the windows.

I paid $6000 for kitchen cabinets and installed them myself in addition to doing the plumbing, electrical, drywall, mudding, and painting. The total cost was $7000.

 

[CardsFan]

It's a lifestyle choice and I decided when I was young that the hassles and expenses that come with owning a maintaining a home was worth it for me. At the time buying was about the same or just slightly more than renting but that wasn't a factor...owning my own home was the goal.

In our first home, I spent 2 summers scraping off the old paint with a 1" putty knife and a propane torch. What fun . Seriously, we were young and had the time and energy.

Renting in a big city makes sense (mobility). Rent in the burbs only makes sense if you will be there short term (again, mobility). But location matters.

 

[Mr. Tightwad]

The yearly upkeep on a house whether it be yard work, new roof, new windows, new driveway, new boiler, AC, etc is substantially more than what yearly increases might be on a rent stabilized 1BR apartment.



Taxes and insurance alone make renting a better tradeoff.For my situation, anyway. Houses suck money out of you continually, that can't be denied.

I can deny it. Besides the $57,600 in rent I collect each year, how does this sound:

House 1 paid $225,000 for it, now worth $1,000,050.

House 2 paid $193,000 for it, now worth $1,450,000.

House 3 paid $160,000 for it, now worth $560,000.

Apparently your renting has worked out for you. I doubt you can beat these returns. Don't forget all the tax deductions along the way. These returns allowed me to retire at 45.

 

[FREE866]

I can deny it. Besides the $57,600 in rent I collect each year, how does this sound:

House 1 paid $225,000 for it, now worth $1,000,050.

House 2 paid $193,000 for it, now worth $1,450,000.

House 3 paid $160,000 for it, now worth $560,000.

Apparently your renting has worked out for you. I doubt you can beat these returns. Don't forget all the tax deductions along the way. These returns allowed me to retire at 45.

How long have you held those houses for?
And how much did you put into each house?
Are those the only houses you own?

 

[W2R]

I have rented for 45% of my adult life, and have owned my own home for the remaining 55%.

I'll never voluntarily rent again.

 

[HI Bill]

How long have you held those houses for?
And how much did you put into each house?
Are those the only houses you own?

While the poster undoubtedly made money on each of these, I'd also be interested in the 'net cost of ownership' for these.

• Money out: Mortgage, Insurance, Repairs, Property Taxes, Income Tax on Rent, Carrying costs while vacant
• Money "In": Rent, Appreciation, Deductions
• Total monthly cash flow.
• Tax liability upon sale.

The poster has just over $3M in properties, and is only bringing in 1.9% of their value annually in rent (unclear if this is net of costs).

 

[The Cosmic Avenger]

Don't forget, if you purchased a $500K house with a 3.5% 30-year loan (assuming you don't pay it off early), you'll pay over $300K in interest over the life of the loan, so that "$500K house" actually cost you over $800K, not including maintenance or opportunity cost.

It only looks like a simple calculation when you have a point to prove.

 

[razztazz]

People with modest incomes who want to own homes should know how and not mind doing regular maintenance

I installed the windows and doors myself and helped a contractor friend install the furnace. I paid his wholesale cost for the furnace plus for some ducting as I moved it to a better location...probably $1200 all in.
Windows and doors are easy to install, half hour or so each. I did pay a concrete cutting company $800 to cut holes in the foundation when I wanted extra basement windows. I followed right behind him and installed the windows.
I paid $6000 for kitchen cabinets and installed them myself in addition to doing the plumbing, electrical, drywall, mudding, and painting. The total cost was $7000.

ALL subsidies. I am not against buying. I've owned and rented as it suited the situation. But here is an example of the math of owning always looks better (like every other expense and investment) when it's subsidized somehow.

And, no, doors and windows et al are not "easy" to install. For you and others maybe. But that's relative. Other people might know how but can't for other reasons. And I know many who did but didn't know how. Disaster! But they still continue to brag about it and how much money they saved (the math of owning was a loser, ya see) and how it's no trouble at all to stuff towels around the windows when it rains. Friend who does furnaces? That's a freebie. "Making friends with furnace guys and roofers and cement guys and plumbers..." shouldn't be part of the math of buying a house. Sounds a little like the article that kicked off this thread.

 

[Music Lover]

Don't forget, if you purchased a $500K house with a 3.5% 30-year loan (assuming you don't pay it off early), you'll pay over $300K in interest over the life of the loan, so that "$500K house" actually cost you over $800K, not including maintenance or opportunity cost.

It only looks like a simple calculation when you have a point to prove.

And if you paid $2000 a month rent over that same period you would have paid $720,000 and had $0 equity instead of $500,000. And probably the appreciation of that $500,000 house far exceeds the total maintenance cost.

 

[COcheesehead]

The main way buying works out is if you are able to take the 'happy path'. Property appreciates. You do not move. Your direct neighbors behave. Your maintenance doesn't get out of control. You put in a lot of effort to keep the yard mowed and clean.

Factor in a new number that is the result of paying for every fix and mowing the lawn.

Our last house appreciated so much over 6 years, it enabled us to pay cash for our current house.

 

[MarieIG]

If I were single, I might have stayed in an apartment. I am NOT handy.

I don't know that we made any money in our house vs. what we would have had be rented. It would depend on the cost of the rental.

Sure the price of our house went up, but the overhead is steep due to being in a HCOL area, with the property taxes and utilities. But overall the choice to buy a house was not based solely upon finances. We wanted space for the kiddos. Also DH does not like apartment living, so there is that.