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Rent vs Own...the big difference
Old 10-17-2019, 03:09 PM   #1
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Rent vs Own...the big difference

Interesting article, and math back up, of how to compare renting a place to live verses owning your own home.

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Whacky math is everywhere around us and some of the whackiest Iíve seen surfaces in the rent vs. own discussion. It sometimes takes almost a forensic accountant to determine where people fudge the numbers. James Altucher certainly fudged his numbers very artfully! That makes you wonder: whatís the motive of Altucher the other radical renters? Are they secretly investing in private equity multi-family housing deals and trying to talk potential tenants out of buying their own home! Nah, thatís preposterous! I have a different theory, though. I found a link to a cool survey of what homeowners and renters regret. 8% of homeowners would rather be renters but 45% of renters would rather be homeowners. Maybe a lot of renters just realize that they missed out on homeownership and try to ex-post-rationalize their bad decision. By hook or by crook. Donít listen to the crooks!
https://earlyretirementnow.com/2019/...homeownership/
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Old 10-18-2019, 05:39 AM   #2
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It's an interesting article but nothing really new here. He basically says that a lot of comparisons of home ownership vs stock markets neglect to properly figure in the value of leverage and even neglect to offset the value of the savings from no rent.
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Old 10-18-2019, 07:23 AM   #3
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The value of being able to move closer to work, take advantage of renting a smaller place when you need a smaller place, commuting savings, time savings doing home maintenance is almost incalculable.

What is the advantage and cost savings of being able to move away from a crazy neighbor, or get away from an HOA?

If you maximize the rental experience, it is far cheaper to rent that own.

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8% of homeowners would rather be renters but 45% of renters would rather be homeowners.
That is like saying 45% of people that collected SS at 62 wish they would have waited until 70, and 8% that waited wish they would have started earlier. There are far too many variables and a lot of hindsight that is it not even a valid poll.
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Old 10-18-2019, 08:46 AM   #4
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The value of being able to move closer to work, take advantage of renting a smaller place when you need a smaller place, commuting savings, time savings doing home maintenance is almost incalculable.

What is the advantage and cost savings of being able to move away from a crazy neighbor, or get away from an HOA?

If you maximize the rental experience, it is far cheaper to rent that own.
I maximized owning and it was cheaper than renting.

Ownership provides numerous advantages that renting can't provide but renting has advantages over owning, so it has to be looked at from a lifestyle perspective instead of strictly financial. Everyone's needs and wants will be different.
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Old 10-18-2019, 08:52 AM   #5
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It's true, there are too many variables that cannot be easily or objectively assigned a dollar value to make renting vs. owning a simple calculation. For me, less commuting time is worth a lot more to me now, when I'm close to FI, than it was in my earlier years, when I was trying harder to maximize income and minimize expenses. I value my time more now than I did 10 or 20 years ago, and there's no one right value for your time, or your peace of mind. Renting can add some of that kind of non-monetary value for many people, so as long as it's done intentionally (e.g., I could make $10K more per year, but I'd have to commute an extra two hours a day, so it's really not worth it), it's not "wrong".
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Old 10-18-2019, 09:37 AM   #6
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IMHO, the best reason to rent is to that a landlord can't upend your life at any time by kicking you out of the property. This has happened numerous times to people I know. Recently, one couple was informed the condo they are renting was being sold. Out they went!
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Old 10-18-2019, 10:00 AM   #7
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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.

Distance from work is not an issue for me. In fact, I moved FURTHER from work...that area, the whole county in fact, is getting more and more crowded, and just going downhill in general. Plus, I'm hoping to be retired in a couple years, so I'm not that pressed about the commute.
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Old 10-18-2019, 10:12 AM   #8
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As with most property...location, location, location..will be the deciding factor to rent or own. I live in SOCAL (less than a half mile from Universal Studios) where rents are easily $2000 for a small 1 bedroom apt. I bought a 1 bedroom condo at the bottom of the market and now it's worth twice what I paid for it and my mortgage is $945. If I hadn't bought at the time I did the city would have priced me out a long time ago and I would never have been able to save for the future.
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Old 10-18-2019, 10:31 AM   #9
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The analysis is pretty simple for us. In Southern California we own our place free and clear and we pay property tax, insurance, and maintenance which amounts to about $1000 per month. Rental homes in our area are now like our place will cost about $4500-$5000 per month (if you can find one). In Florida, we paid cash for the condo (pennies on the dollar) at a time after the last financial crisis. It costs us about $1150 per month (property tax, insurance, condo fees). Units like ours rent now for $2500 per month unfurnished. In Switzerland, the place we own (free and clear) would rent for about 4500 CHF per month ($4500), we pay nothing as the rent from two units in our triplex covers all expenses plus reserves for property improvements.
Don't forget that the price appreciation of real estate over the past 30 years. Many people who have been renting in Southern California are completely shut out of the real estate market.
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Old 10-18-2019, 10:37 AM   #10
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We have reviewed this in detail recently as we want to downsize and are wondering if we should sell first, rent then buy at our leisure.

OK the Annual Base costs of owning our 3200sqft home that is walking distance from a very nice beach, including RE Taxes, Insurance, HOA, Pool Maintenance, Gardening and estimated annual home maintenance (3 year averages BUT NOT including home renovations we have done in the last 10 years) is $13k

To rent a ~2000sqft home in the same development is $30k so the premium in this case is $17k. If we wanted apple to apples comparisons for a ~3000sqft home the rent would be ~$37k so those are the numbers we use for comparison.
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Old 10-18-2019, 11:18 AM   #11
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I too live in SoCal. Have 1 year until my house is paid off. My younger sister bought a home 2 years ago in a far lesser community and owes 500k. She makes more than me but I am by far better off financially. The difference is 100% my soon to be paid off home.

We will retire in 2020 at 54. She has to work to at least 65 and then move.
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Old 10-18-2019, 11:22 AM   #12
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Hehe, I was evicted once because the owner wanted to sell. But that was good as it accelerated the purchase of this house.

Owning will be less expensive than renting if you don't have to move a lot. And eventually you end up with a "maintenance cost only" place to live in.
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Old 10-18-2019, 11:26 AM   #13
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Quote:
Originally Posted by Chuckanut View Post
IMHO, the best reason to rent own is to that a landlord can't upend your life at any time by kicking you out of the property. This has happened numerous times to people I know. Recently, one couple was informed the condo they are renting was being sold. Out they went!
fixed.
When I rented my landlord tried this, after having me sign a new lease
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Old 10-18-2019, 11:28 AM   #14
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Hehe, I was evicted once because the owner wanted to sell. But that was good as it accelerated the purchase of this house.

Owning will be less expensive than renting if you don't have to move a lot. And eventually you end up with a "maintenance cost only" place to live in.
Plus property taxes and insurance.
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Old 10-18-2019, 11:43 AM   #15
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On average renting must cost more since 1) it generates income for a regulated landlord plus perhaps a management company, and 2) your rent payments subsidize fellow renters who don't pay and must be evicted.
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Old 10-18-2019, 12:53 PM   #16
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Lifelong renter here and couldn't be happier.



The money I didn't have to put into buying a house, the ongoing taxes on the house, as well as the ongoing cash infusion to maintain the house I was able to have invested in the stock market and benefit from tremendous returns.
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Old 10-18-2019, 01:17 PM   #17
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I've done both. Right now all in our home we own costs us about $600/month. Taxes, HOA, insurance, maintenance, etc. Rents for similar places run $2200+. But what about opportunity cost of not being in the market? I am in capital preservation mode. I would not get more than inflation + on my money anyway and I don't have to invest such to cover the higher cash flow needed.
Renting also sucks. At least my experience. You have zero say in what happens around you. Neighbors are transient and some just don't care when its "not theirs". Rents go up and up and up. Rentals never really become "yours". Give me a home I can call my own.
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Old 10-18-2019, 01:25 PM   #18
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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.

Landlords are gonna put in the cheapest crap they can find when they can "getta round toit"
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Old 10-18-2019, 01:30 PM   #19
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ďDo you mean to tell me, Katie Scarlett OíHara, that Tara, that land, doesnít mean anything to you? Why, land is the only thing in the world worth workiní for, worth fightiní for, worth dyiní for, because itís the only thing that lasts.Ē
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Old 10-18-2019, 02:06 PM   #20
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Lifelong renter here and couldn't be happier.

The money I didn't have to put into buying a house, the ongoing taxes on the house, as well as the ongoing cash infusion to maintain the house I was able to have invested in the stock market and benefit from tremendous returns.
Your rent is priced to include those costs.
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