Rent vs Own...the big difference

[CardsFan]

Quote:

Originally Posted by Music Lover 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]

Quote:

Originally Posted by FREE866 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]

Quote:

Originally Posted by Mr. Tightwad 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]

Quote:

Originally Posted by FREE866 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]

Quote:

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

Quote:

Originally Posted by Music Lover 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by Senator 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.

[Music Lover]

Quote:

Originally Posted by razztazz 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.

I don't make friends with furnace guys...I have a friend who just happens to be a furnace guy. Big difference. Many of my family and friends are in trades, most of us are handy, and we all help each other on various projects. We all come from the "we'll do it ourselves" school and we actually enjoy building decks, fences, and garages and then appreciating a job well done at the end. Other people choose to cut a cheque and let someone else do the work...that's fine, that's their choice but it's not how we do things.

So, it's not a subsidy or a freebie in my world...it's just friends helping friends like we've always done.

[Mr. Tightwad]

Quote:

Originally Posted by FREE866 How long have you held those houses for? And how much did you put into each house? Are those the only houses you own?

Bought in 89, 96, and 98.

The downs were 32K, 6K and 22.5K

Had a fourth and sold it.

My theory is that even someone with low, rent controlled rent payments (which can be a great thing keeping monthly spend low) doesn't come out as good as what I described.

[Mr. Tightwad]

Quote:

Originally Posted by HNL Bill 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).

I live in one of them. I've never had a vacancy longer than 3 days, demand in Southern California takes care of that. I'd probably pay about 800K liquidating them without a 1030 exchange.

[Mr. Tightwad]

Quote:

Originally Posted by 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.

You only pay 800K for that home if you don't pay it off early. I started buying when I was 26 and had them all paid off at 45.

I also had 10 and 15 year loans along the way to make it easier.

[FREE866]

Quote:

Originally Posted by Mr. Tightwad Bought in 89, 96, and 98. The downs were 32K, 6K and 22.5K Had a fourth and sold it. My theory is that even someone with low, rent controlled rent payments (which can be a great thing keeping monthly spend low) doesn't come out as good as what I described.

So you put a total of $32,000 into house #1 30 years ago and today its worth over million dollars?


You put a total of $6,000 into house #2 23 years ago and and its worth 1.5 million?


and put $22,000 into house #3 21 years ago and its worth $560,000?


This sounds incredible!!

[Mr. Tightwad]

Quote:

Originally Posted by FREE866 So you put a total of $32,000 into house #1 30 years ago and today its worth over million dollars? You put a total of $6,000 into house #2 23 years ago and and its worth 1.5 million? and put $22,000 into house #3 21 years ago and its worth $560,000? This sounds incredible!!

Put 32k down for the 160K home. Now worth 560K.

Put 6k down on the 193K home (FHA loan) now worth 1.45M

Put 22.5k down on the 225K place. Now goes over 1M. And I borrowed the down from the "160" home so actually used none of my $ to get it.

I realize this wouldn't have been my results if I lived in an area with low appreciation. Long term landlording in Southern CA. is quite profitable.
That's how so many homeowners/landlords move to nearby states and buy up everything, raising the prices for the locals.

[Senator]

Quote:

Originally Posted by Music Lover 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.

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 do similar items in my rentals. They are easy. Numerous kitchens, furnaces, boilers, tearing out walls, running gas, plumbing and electricity for dryers, washers, etc.

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.

[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!

[The Cosmic Avenger]

Quote:

Originally Posted by Mr. Tightwad You only pay 800K for that home if you don't pay it off early. I started buying when I was 26 and had them all paid off at 45. I also had 10 and 15 year loans along the way to make it easier.

Exactly. The numbers don't tell the whole story anyway, but rent vs. own is never a simple equation, even if you are just looking at the numbers. There are too many variables like that.

[gauss]

I rented from 1990 to 1999 and bought thereafter. I invested heavily in mutual funds during the rental years. Reviewing my ROI on my house after 20 years, I suspect that financially, the house which was purchased for 219k in 1999 an now worth 252k (a 15% increase over 20 years) was not such a smart move, financially, in retrospect.

Fortunately, the house is a small value of my NW, and there was the intrinsic lifestyle benefits of living in the house so no worries.

Bottom line is that if someone tells you that it is always better to buy a house than to rent, assuming the difference in cash is invested and not spent/consumed, or to buy the biggest most expensive house that you can afford, then they are doing you a disservice.

Your own Critical Thinking will serve you better.

-gauss