Rethinking Real Estate Rent V. Buy

[cb7010]

I was listening to an economist speak a few days ago and he talked briefly about real estate and the debate between renting and buying; and, something he illustrated got me thinking.

His point was that the ultimately decision on which is better from a purely economic sense was relative to the specific numbers, which will obviously vary from time to time and from market to market.

But, to help illustrate that buying wasn't inherently superior to renting, he talked about property taxes and the repurcussion of not paying them, namely losing your home!. So, basically, even when we "purchase" real estate, we are still "renting" it in a sense from the government..ie, do we ever really own the real estate if the government can confiscate it for not paying their "rent"/taxes? This analogy got me thinking and in one sense for me lessons the divide between the concepts of renting or buying a home.

On a lighter note, he used a rhetorical example suggesting that any of us who own homes should go down to the local assessor's office and ask them how much we could pay in a lump sum to buy out of the property tax system so that we could truly own our property once and for all. You think anyone has even contemplated this? After all, it's just math and discounted cash flow, right!

 

[Birdie Num Nums]

But by renting you're putting your "life on hold"--I've always heard.

 

[Nodak]

I'm in the process of switching from owning to renting. At 63 years old I no longer want the responsibility of maintaining a house. the taxes, insurances, and utility expenses add up to within a few dollars of the cost to rent a nice apartment in another town. My home is small and in an isolated low population area (about 1500 people) and is only worth about $45,000. I have relatives in a town of about 18,000 about 350 miles from here and would like to live closer to them. Another problem here is that if I want to travel for any length of time during the winter I have to get someone to watch my home. If the heat fails in January the plumbing could freeze and do serious damage in a few hours. The weather in my target location is also much milder. The apartment I'm looking at is in a newly constructed building, it's 830 sq ft with good storage area, and costs $715 per month. I guess what it comes down to is not only a monetary consideration but how you want to live your life.

 

[zinger1457]

For me there are a lot more positives with owning. It does depend on where you live but with todays low prices and low interest rates you would probably pay less per month for a fixed mortgage payment then you would if renting an equivalent home. Your mortgage payment will be the same today as it will be 25 years from now. What is your rent going to be in 25 years? Yes, you do have property taxes and insurance to deal with but the tax advantages with owning would negate much of that. I paid off my mortgage at 51 and it feels great, allowed me to ER at 52.

 

[Khan]

I have owned a home (now paid for) since '78. Both the house and I are falling apart. When the cat dies I'm moving to a small apartment; don't know where yet.

 

[Meadbh]

I have owned a home (now paid for) since '78. Both the house and I are falling apart. When the cat dies I'm moving to a small apartment; don't know where yet.

In 1978 I was living chez famille and have since moved house 8 times. The first 7 places I rented, because I knew I would not be there for long. Once settled I bought a modest home in 1991. I expect to move again in the next few years. Buying, paying off the mortgage quickly, and staying for a long period has been a good financial decision, but selling and moving is a hassle. I think the decision to buy or rent is primarily a lifestyle one. If I was happy in my home I would not want to be forced to move at the whim of a landlord.

 

[Amethyst]

One of the best arguments for renting is that you are mobile. As a homeowner, you have to worry all the time about what if you go away in the winter and the pipes freeze, etc. As a renter, you can pick up and travel whenever you want, since what happens to the rental dwelling is only marginally your concern, and renter's insurance is pretty cheap.

When I was in my 20's I had no financial choice but renting, and the choices for renters back then were, frankly, highly icky. After 7 years, I had had quite enough of cockroaches (a creature I had never actually seen before moving into an apartment), vicious competition for parking, hideous carpet, and the squalid sort of neighbor who, back then, seemed native to rental apartments. Through extreme LBYM, I managed to buy my first house at age 28 and have been a homeowner ever since.

During that time, I've seen the dwelling choices for renters - apartments, town houses, and single family homes - become ever broader, newer, and nicer, while the many open and hidden costs and worries of being a homeowner keep rising. Husband and I agree that if we didn't already own a mostly-paid-for home, we'd look seriously into renting. Look at your choices and run your numbers, and forget the timeworn "a home builds equity, while all you'll have to show for renting is landlord receipts" arguments.

Amethyst

 

[Birdie Num Nums]

Here are some links to the "rent vs. own" debate, courtesy of the Seattle Bubble.com site:
1) Top 30 Cities: Price to Rent & Price to Income Ratios
2) Oh Boy, Let’s Visit the Buy vs Rent Argument Again
3) Checking Up on the “Forced Savings Plan” Myth
4) “Throwing Away Money”

 

[Nodak]

If I was happy in my home I would not want to be forced to move at the whim of a landlord.

In my case the building was built and is run by an apartment management company. They have about 6 buildings and are putting up a couple more. I would also be a bit leery of a private party as a landlord but am not too worried about the management company.

 

[BigNick]

Personally, I'm a fan of renting, but the argument quoted by the CO is just "tax is evil" semantics. We all have some unavoidable expenses in life, and homeowners have some which renters don't: for example, insurance on the structure, repairs to the roof, and, yes, taxes. If you don't pay the first two, you might well also lose your home, but I don't think that that means that the insurance industry or the building trades part-own my home.

Or, as my wife said when I read the OP out to her to check that I wasn't missing something: of course you own it: you can sell it.

(Yes, I know that you could self-insure, and you could repair your own roof, using tiles which you baked in your oven from clay which you dug up in your garden. But on planet earth, you depend on others for that, just as you depend on the city to build the road which leads up to your driveway.)

 

[Alan]

Another problem here is that if I want to travel for any length of time during the winter I have to get someone to watch my home. If the heat fails in January the plumbing could freeze and do serious damage in a few hours. .....

..... I guess what it comes down to is not only a monetary consideration but how you want to live your life.

One of the best arguments for renting is that you are mobile. As a homeowner, you have to worry all the time about what if you go away in the winter and the pipes freeze, etc. As a renter, you can pick up and travel whenever you want, since what happens to the rental dwelling is only marginally your concern, and renter's insurance is pretty cheap.

This is us. We owned houses for 26 years and now love the freedom of apartment dwelling, and ability to "lock and leave" when we go on long vacations. We tell the front office that we are leaving for 'x' weeks and they send someone round once a week to check everything is okay.

 

[Meadbh]

In my case the building was built and is run by an apartment management company. They have about 6 buildings and are putting up a couple more. I would also be a bit leery of a private party as a landlord but am not too worried about the management company.

I own several apartments like that, as investments. I don't plan to live in them, just rent them to good tenants. I delegate everything to the management company, except that I serve as a Board member on one condo corporation. We have a rental pool so that one tenant moving on will not have a significant impact on any single investor's income. The quality of the management company is key to the satisfaction of both the renter and the investor. Ironically, one tenant in one of the buildings I own in was perennially dissatisfied because we made "too many improvements". I think he has moved on now.

 

[Nodak]

This is us. We owned houses for 26 years and now love the freedom of apartment dwelling, and ability to "lock and leave" when we go on long vacations. We tell the front office that we are leaving for 'x' weeks and they send someone round once a week to check everything is okay.

I've owned houses for the last 34 years and am tired of the responsibility.

 

[traineeinvestor]

I agree that the economics primarily depend on the specific numbers of individual cases and, as others have said, lifestyle choices are an important consideration.

Having both owned and rented at various times, I generally perfer owning as much for the feeling of stability, the knowedge that I won't have to move unless I choose to and the ability to decorate as I please. It didn't hurt that, at the time we purchased, the economics favoured buying over renting.

 

[Nords]

I was listening to an economist speak a few days ago and he talked briefly about real estate and the debate between renting and buying; and, something he illustrated got me thinking.
His point was that the ultimately decision on which is better from a purely economic sense was relative to the specific numbers, which will obviously vary from time to time and from market to market.

We'll have to load up these armchair economists with families, moving vans, and furniture dollies to see how they feel about that "economic" decision of switching back & forth between renting & owning.

Spouse and I plan to die in Hawaii. At first we expected to spend our final years in an apartment, but land costs here mean that typical apartment complexes go vertical and leave you hostage to an elevator. We also enjoy being able to interact with the outdoors-- looking out the (open) window to watch the breezes and the birds. Kinda tough to do so in a 2BR on the 10th floor.

Next we looked at condos. If economists are unhappy about property taxes then they'd be downright despondent about HOA fees. I'd have a hard time spending $300-$500/month to have to listen to Mow, Blow, & Go Landscaping moving the leaves around. While many condos are 1-2 story and nicely equipped, most resemble high-rise apartments with, of course, the extra fees.

Then we considered moving back into our rental SFH someday. (Our current home is a two-story and not particularly wheelchair-friendly.) In 10-20 years our daughter could move her prospective family into our current home (with its excellent public schools). Our rental is a single-story on a 5400 sq ft lot but there's space to enjoy the critters. However there are other minor annoyances like traffic at a nearby intersection, delivery trucks at the local shopping center (beep-beep-beep), and neighbor noise.

After several years of this perpetual discussion, a friend showed me photos of how he'd converted a downstairs laundry room into a wheel-in shower for his aging parents. I realized that our current home wouldn't need much renovating to do the same to make it much more accessible, and we'd only "lose" the use of an upstairs bedroom/bath.

So now we're back to staying in our current home until we die. It's just about perfect for our lifestyle preferences and we can always knock out a bedroom wall to make the bathroom bigger. I've also been working hard on the downslope back yard to make it much easier to maintain with much less yardwork. Hopefully by the time I can no longer take care of this place, I'll be too demented to know the difference...

 

[Khan]

We'll have to load up these armchair economists with families, moving vans, and furniture dollies to see how they feel about that "economic" decision of switching back & forth between renting & owning.

Spouse and I plan to die in Hawaii. At first we expected to spend our final years in an apartment, but land costs here mean that typical apartment complexes go vertical and leave you hostage to an elevator. We also enjoy being able to interact with the outdoors-- looking out the (open) window to watch the breezes and the birds. Kinda tough to do so in a 2BR on the 10th floor.

Next we looked at condos. If economists are unhappy about property taxes then they'd be downright despondent about HOA fees. I'd have a hard time spending $300-$500/month to have to listen to Mow, Blow, & Go Landscaping moving the leaves around. While many condos are 1-2 story and nicely equipped, most resemble high-rise apartments with, of course, the extra fees.

Then we considered moving back into our rental SFH someday. (Our current home is a two-story and not particularly wheelchair-friendly.) In 10-20 years our daughter could move her prospective family into our current home (with its excellent public schools). Our rental is a single-story on a 5400 sq ft lot but there's space to enjoy the critters. However there are other minor annoyances like traffic at a nearby intersection, delivery trucks at the local shopping center (beep-beep-beep), and neighbor noise.

After several years of this perpetual discussion, a friend showed me photos of how he'd converted a downstairs laundry room into a wheel-in shower for his aging parents. I realized that our current home wouldn't need much renovating to do the same to make it much more accessible, and we'd only "lose" the use of an upstairs bedroom/bath.

So now we're back to staying in our current home until we die. It's just about perfect for our lifestyle preferences and we can always knock out a bedroom wall to make the bathroom bigger. I've also been working hard on the downslope back yard to make it much easier to maintain with much less yardwork. Hopefully by the time I can no longer take care of this place, I'll be too demented to know the difference...

My house can not be refitted into 'universal design'. I want to move ahead of the dementia. No friends or family here.

 

[W2R]

After several years of this perpetual discussion, a friend showed me photos of how he'd converted a downstairs laundry room into a wheel-in shower for his aging parents. I realized that our current home wouldn't need much renovating to do the same to make it much more accessible, and we'd only "lose" the use of an upstairs bedroom/bath.

Relatives of a friend of mine had a device installed on their back stairs. There is a seat to sit in, which automatically ascends up or down the stairs as desired. I don't know how expensive these are (and it does take a few minutes so it would not be for the impatient), but maybe that sort of arrangement could help.

If I had to buy a two story house, it would need to have (or I would add) a bedroom, laundry facilities, and a full bath on the first floor. Then I wouldn't have to go upstairs often, and when I did it would be with the help of the staircase device I just described.

But probably I will just buy a one story house. I have even seen some that are pre-adapted for the handicapped, with ramps and wider doors and handrails, and I wouldn't object to that at all. But, it will be some years until these adaptations are necessary if they ever are.

 

[Alan]

Relatives of a friend of mine had a device installed on their back stairs. There is a seat to sit in, which automatically ascends up or down the stairs as desired. I don't know how expensive these are (and it does take a few minutes so it would not be for the impatient), but maybe that sort of arrangement could help.

My father and my MIL both had one in their houses, and they are great. By brother and I bought my Dad's 3 years ago and it cost ~$3,500 including installation.

Last year while in England I went into my Dad's one day and couldn't see him or get a response to my shouts (he was a bit deaf by then). I walked through to the back of the house and saw his chair lift half way up the stairs, but no sign of Dad. Then I heard the toilet flush, and when he appeared at the top of the stairs I asked what was going on. He said he was bursting for a pee and the chair lift was taking too long

 

[W2R]

My father and my MIL both had one in their houses, and they are great. By brother and I bought my Dad's 3 years ago and it cost ~$3,500 including installation.

Last year while in England I went into my Dad's one day and couldn't see him or get a response to my shouts (he was a bit deaf by then). I walked through to the back of the house and saw his chair lift half way up the stairs, but no sign of Dad. Then I heard the toilet flush, and when he appeared at the top of the stairs I asked what was going on. He said he was bursting for a pee and the chair lift was taking too long

I can sympathize! Those lifts are SLOW. It's wonderful to hear that they only cost around $3500 including installation. That's really not as much as I had imagined. They seem extremely sturdy.

 

[Nodak]

My house can not be refitted into 'universal design'. I want to move ahead of the dementia. No friends or family here.

+1

 

[ncaraway]

I've always rented. Buying a home may have made sense 50 years ago when a person could have one job for their entire career. Unfortunately, that's no longer the case. That aside, as a renter I don't have unexpected large expenses like roof fixes, redoing driveways, new water heater, etc. It makes saving easier.

 

[youbet]

So now we're back to staying in our current home until we die. It's just about perfect for our lifestyle preferences

We currently feel that way too. We've been here for 32 yrs. I had this place built with low maintenance in mind and it has been that. Small, single story, all brick with aluminum facia, eves and gutters. Simple landscaping and a small lot. 3 br, 1.5 baths, kitchen, dr, lr and a full basement with a finished section, laundry and my shop. 2 car attached garage.

Doing most maintenance, decorating and misc upkeep myself has been my part time job over the years. I recently relented and signed onto a lawn service so we could be away more without that worry. And I've lost interest in maintaining landscaping and cleaning gutters anyway. I'm sure we'll need to hire more services as the retirement years go by. But that's OK. It's in "the plan."

Unless something changes our plans, we'll stay here until the normal home owner's chores become more of a hassle than we're comfortable with (either doing ourselves or hiring done) and then we will move to a small rental unit in a senior community. No plans for an intermediate step to a condo or similar.

 

[GregLee]

... as a renter I don't have unexpected large expenses like roof fixes, redoing driveways, new water heater, etc. It makes saving easier.

I rented for the first two decades of my work life, for these reasons and others. But then I found I had stopped saving, because after paying the rent, I just didn't have anything left. Not liking the future if I continued on this way, I decided to buy with a large down payment and a 10 year mortgage. It was not easy getting through those 10 years, in part because of the roof fixes you mention. But I made it, and it is a considerable relief not to have to pay rent anymore. Now I can start saving again. And I can look back and try to decide whether I should have bought earlier. Well, I should have, it turns out. But of course this depends on how property values have fared.

 

[Nords]

That's a good point about the stair chairs. I was thinking that we'd just abandon that room and move into one of the downstairs bedroom.

Maybe in 35 years I'll finally have my personal anti-gravity pack...

 

[cb7010]

good discussion..and, to be clear. The lecture I initially referred to was more about the recent real estate bubble, government promotion of home ownership, and taxes than purely the difference between renting and buying real estate.

I have mostly been a homeowner for the past 12 years or so. In fact, until recently I would have never considered renting. But, I think the ultimate decision is one that is a mix of finance and lifestyle. If you find a place you want to stay for a long time, then likely buying is the right answer. If you want the freedom to move periodically, then renting is probably a better choice.