Primary Residence-Buy or Rent

[golftrek]

We sold our primary residence about 6 months ago. Our plan was to downsize to a something smaller. We had always owned but this time our house sold so quickly (2 weeks) that we did not have time to buy anything so we rented a condo. Surprisingly we are enjoying renting--one fixed payment each month, no maintenance costs, etc. When something breaks, we just call the landlord and let him handle it. We have a one year lease on the place we are in and we had assumed we would buy at the end of the term but now we are thinking we may continue renting.

The real estate taxes are fairly high where we live and when we look at the cost of ownership (taxes, insurance, HOA dues, maintenance, etc), it looks like renting may be more cost effective. We have the proceeds of the sale of our last home invested in fixed income--not earning much but it is safe. Of course, by renting we are giving up the opportunity for appreciation on the real estate (of course real estate can depreciate too).

We like the idea that if we want to move and try living in another area it will be easier to do if we are renting. We have downsized so much that we don't have a lot of stuff to move.

We are in our 60s and have our name on the waiting list for a nice Continiung Care Community (that has independent living, assisted living, nursing home). We figure we will move to the CCC within the next 10 years or so. So we need to either rent or buy for the next 10 years or so.

Any advice on the rent versus own issue?

 

[Major Tom]

No particular advice, as it's such a personal issue. The financial aspect will be affected very much by your local market, and the personal aspect - well, that's more subjective.

I do understand where you're coming from though. I have both owned and rented, and enjoyed both. After moving from my house into a rental, I hadn't realized how when I owned, there was always a maintenance "to do" list at the back of my head. Nothing very critical, but thoughts along the lines of, "Well, I may need to paint in a few years," or "This could use a bit of reinforcement and extra work when I have the time." At the time, I enjoyed it. I suppose it's part of what is called "pride of ownership. However, on moving into a rented apartment, I loved being able to clear my head of all such thoughts. Plus, when I made a 400-mile move up to Northern California, turning in my 30-day notice was a whole lot easier than selling or renting out a property.

From what you say, it sounds as if the decision to buy or rent might be driven more by your lifestyle, rather than financial factors. Have fun deciding!

 

[TallTim]

Surely a personal decision that gets (and has gotten) a lot of play in other rent v. buy threads.

Obviously, timing and security are relevant as are the potential returns on the capital that would otherwise be tied up in the real property ownership scenario.

Personally, we rent and though we aren't RE yet, we are FI or at least close to it and plan to rent for the foreseeable term.

 

[MasterBlaster]

The New York Times has a buy-or-rent calculator that may help one decide if renting is better than buying or vice versa.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Click the "advanced settings" button to set cost-of-capital, tax effects, and opportunity cost trade-offs

 

[W2R]

We sold our primary residence about 6 months ago. Our plan was to downsize to a something smaller. We had always owned but this time our house sold so quickly (2 weeks) that we did not have time to buy anything so we rented a condo. Surprisingly we are enjoying renting--one fixed payment each month, no maintenance costs, etc. When something breaks, we just call the landlord and let him handle it. We have a one year lease on the place we are in and we had assumed we would buy at the end of the term but now we are thinking we may continue renting.

The real estate taxes are fairly high where we live and when we look at the cost of ownership (taxes, insurance, HOA dues, maintenance, etc), it looks like renting may be more cost effective. We have the proceeds of the sale of our last home invested in fixed income--not earning much but it is safe. Of course, by renting we are giving up the opportunity for appreciation on the real estate (of course real estate can depreciate too).

We like the idea that if we want to move and try living in another area it will be easier to do if we are renting. We have downsized so much that we don't have a lot of stuff to move.

We are in our 60s and have our name on the waiting list for a nice Continiung Care Community (that has independent living, assisted living, nursing home). We figure we will move to the CCC within the next 10 years or so. So we need to either rent or buy for the next 10 years or so.

Any advice on the rent versus own issue?

(bold emphasis mine)
Seems to me you have answered your own question! Nothing wrong with renting. Besides, you never know. The space at that CCC might open up at any moment, and you will be ready for it right away.

 

[golftrek]

The New York Times has a buy-or-rent calculator that may help one decide if renting is better than buying or vice versa.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Click the "advanced settings" button to set cost-of-capital, tax effects, and opportunity cost trade-offs

Thanks for the NY tTimes Article--very helpful.
I ran the numbers and based on the NY Times Article we come out better buying if we are going to own for at least 7 years. But we would be paying cash rather than getting a mortgage so I am not sure how that was handled in the calculations.

 

[FIREd]

The New York Times has a buy-or-rent calculator that may help one decide if renting is better than buying or vice versa.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Click the "advanced settings" button to set cost-of-capital, tax effects, and opportunity cost trade-offs

Thanks for the link. We are facing our own rent vs. buy dilemma and the calculator says that buying a no-brainer for us, which confirms my back of the envelop calculations.

 

[In-control]

This is a ? that I have always mulled over. I finally came to the conclusion that, for us, buying a small, low maintenance, place and using that as a base makes the most financial sense. We plan on hiring people to take care of most things. Their are maintenance insurance contracts available as well. This year was the first year that I hired someone to plow the driveway and do the backbreaking projects around the house. It makes home ownership much less stressful. Renting is attractive because of the flexibility and ability to float around quickly. Financially the numbers did not work for us, esp. in our area rents are around $1200 a month for a two bedroom in a nice complex/area in area with a low population.

 

[Ready]

I tend to focus on the lifestyle aspects of this decision more than the financial ones. We just did some home remodeling to make the place look really nice for us. We put up new window covers, wallpaper, paint, and other accessories to make the place feel really personalized for us. We have spent money on built in furnishings, or furniture designed to fit in a very specific space in the house.

If I were renting, I would never know for how long I might be there, so the thought of spending any money on these types of furnishings would be out of the question for me. I guess that would save me money, but it would never feel like my home to me. Maybe I'm more of a homebody that others, but I just don't feel like it's my place if I don't even want to invest in decorating it knowing that I might be a year away from moving again.

I've rented second homes for many years. It was very simple living. One rent check, no maintenance expenses. But for me, it just wasn't like being at home.

I recognize that many people will feel different though, so this is just what works for me.

 

[Birdie Num Nums]

The New York Times has a buy-or-rent calculator that may help one decide if renting is better than buying or vice versa.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Click the "advanced settings" button to set cost-of-capital, tax effects, and opportunity cost trade-offs

This week, the New York Times released a brand new, updated and enhanced version: here.

 

[unno2002]

When any written lease ends, the landlord can ask for higher rent. In general, rent will cover the landlords mortgage, taxes, & insurance. If you own, in general, if you intend to stay there indefinitely, owning should logically be better than being a tenant.

 

[Major Tom]

When any written lease ends, the landlord can ask for higher rent. In general, rent will cover the landlords mortgage, taxes, & insurance. If you own, in general, if you intend to stay there indefinitely, owning should logically be better than being a tenant.

Unless you're in an area where the property is under rent control, in which case even after the lease has expired and the tenancy is on a month-to-month basis, there are strict rules governing allowable rent increases.

 

[Birdie Num Nums]

Or if you get a crappy tenant who costs you time, money, and energy to evict and/or clean up after/repair damages. A great tenant, on the other hand, should be able to negotiate with the landlord. My landlord gives me a great deal; while a tenant in one of his other homes cost him thousands.

 

[daylatedollarshort]

We are going to rent for awhile after we sell until we find the perfect place, but long term the area we want to live buying is probably cheaper in the long run.

Robert Shiller has some good reasons why housing is not usually a particularly great investment -

Americans Vs. Reality: Why Your Home Is Not a Great Investment*The Motley Fool

 

[Totoro]

When any written lease ends, the landlord can ask for higher rent. In general, rent will cover the landlords mortgage, taxes, & insurance. If you own, in general, if you intend to stay there indefinitely, owning should logically be better than being a tenant.

There is no reason why reality has to be logical

For example in Belgium people still invest in houses and apartments because "it is a safe investment". They never actually do the full math and forget expenses like:
* Maintenance costs, especially the large irregular ones
* Concentration risk & home depreciation / appreciation
* Opportunity costs (yield on bonds or stocks)
* Transportation costs because of limited mobility (when changing jobs)
* Insurance costs not directly related to the house: e.g. life insurance taken with the bank where your mortgage is (at higher rates of course)

If you take all those into account you end up with renting as cheaper, and you do not have to deal with mortgages and worry about catastrophes hitting your home. Only downside is that you cannot rent beyond a certain size of dwelling.

Truth is, owning a home and renting a home are two separate markets with their own dynamics, which vary strongly again by location.

 

[Huston55]

I like the calculator.

DW and I just semi-FIREd and plan to move from the south east to the west coast in ~6 mos. We plan to rent for several reasons:

-Not 100% certain we will remain in first location
-Renting wins financially, per this calculator and previous analysis I'd done
-Renting provides more flexibility
-The hassle factor of owning
-"Investment return" from real estate is no longer a goal for us (And, with local exceptions, it's probably not a realistic goal for anyone in the next decade)

 

[travelover]

It is a personal choice. I rented for 10 years and really got tired of the restrictions imposed by the landlords. I especially hated having neighbors on the other side of the wall.

That said, if you are OK with the downsides of renting and find it cheaper, go for it.

 

[Birdie Num Nums]

It is a personal choice. I rented for 10 years and really got tired of the restrictions imposed by the landlords. I especially hated having neighbors on the other side of the wall.

That said, if you are OK with the downsides of renting and find it cheaper, go for it.

That eliminates (owning) virtually all condos then. Plus those detached houses located in housing associations that dictate what you can do with your home. And a detached house does not necessarily insulate you from an obnoxious, noisy neighbor.

 

[Senator]

I will keep my main residence.

I am planning on being a snowbird, but not necessarily for the entire Winter, nor in the same place. I am either going to be RVing, or renting for the small stay where it's warm.

I am not downsizing, but will find a renter to stay in our guest bedroom. That should take care of the expenses of taxes and insurance, plus most of the utilities. Plus, we get a housesitter while we are gone.

 

[W2R]

It is a personal choice. I rented for 10 years and really got tired of the restrictions imposed by the landlords. I especially hated having neighbors on the other side of the wall.

That said, if you are OK with the downsides of renting and find it cheaper, go for it.

That eliminates (owning) virtually all condos then.

Yep. That is why I do not presently own a condo.

Plus those detached houses located in housing associations that dictate what you can do with your home.

Yep. That is why I do not presently own a house in an HOA.

And a detached house does not necessarily insulate you from an obnoxious, noisy neighbor.

It's all a matter of one's own personal assessment of probabilities. There are no guarantees handed over at closing. That said, in my present SFH I have never heard one single peep from any of my neighbors in twelve years (except fireworks on New Years Eve and the 4th), and I never did manage to find an apartment that was this quiet out of the many I have lived in during my life.

Perhaps some day I may own a condo or a home in an HOA, because one's priorities shift throughout life. I am becoming more concerned with safety and less concerned with noise, as my hearing declines and as I become older and more fragile. But I do think the reasons given by travelover for choosing a SFH are reasonable. As he pointed out, it is a personal choice.

Personally, I am not so concerned about the comparative costs (as long as I am in a low COL part of the country). Primarily I would like to feel safe from random assaults/murder/burglary in my own home, I would like to live within easy walking distance of Frank, and I would like my home to be elderly friendly or easily converted to that type of home. Secondary factors for me right now are peace and quiet, low maintenance, and being left alone, and very warm climate. Right now I am mulling over what options I might have. Complicating the decision is the fact that he might or might not be moving shortly and his plans are pretty fluid.

 

[haha]

Complicating the decision is the fact that he might or might not be moving shortly and his plans are pretty fluid.

Do you mean down his block, or to a completely different neighborhood or even city? Does Frank rent?

Ha

 

[W2R]

Do you mean down his block, or to a completely different neighborhood or even city? Does Frank rent?

Ha

He owns his home, and he hasn't decided, which makes this entire process impossibly perplexing for me at the moment. First he'll say probably here, then he'll say probably Springfield, then he'll say that if I move near to him he'll stay in his house here forever, then he'll say that New Orleans is on a downwards spiral and we need to get out. All of this contradictory input is why I probably seem indecisive - - I just don't have sufficient information at the moment upon which to base any decision. I'll just have to be patient for a while.

 

[haha]

He owns his home, and he hasn't decided, which makes this entire process impossibly perplexing for me at the moment. First he'll say probably here, then he'll say probably Springfield, then he'll say that if I move near to him he'll stay in his house here forever, then he'll say that New Orleans is on a downwards spiral and we need to get out. All of this contradictory input is why I probably seem indecisive - - I just don't have sufficient information at the moment upon which to base any decision. I'll just have to be patient for a while.

I understand. You aren't indecisive, he is.

I live about 3 miles from my GF, mostly ok to good neighborhoods between us so I feel ok walking. There is bus service, but it is not a busy route. She works, so I usually see her only on weekends. If /when she would retire, it would be nice to go out for a good coffee. Her neighborhood has a nice Starbucks with fireplace and outdoor seating, but compared to the small coffee houses in my neighborhood the coffee stinks. 3 miles is too far to just get together say for coffee if we only have an hour or so, likely 1/2 mile or less would be better for that. Not going to happen though, and perhaps for the best.

Ha

 

[Walt34]

So much varies with location that it's almost impossible to say what's the best without studying the costs in a specific location.

I moved out of my first apartment because the rent was rising faster than my income. No future in that! And it was because of the high rental costs (no rent control there) that I was in such a hurry to buy a house. That locked in the bulk of my housing costs and worked out wonderfully.

For me, in that location.

 

[meierlde]

That eliminates (owning) virtually all condos then. Plus those detached houses located in housing associations that dictate what you can do with your home. And a detached house does not necessarily insulate you from an obnoxious, noisy neighbor.

If you can buy a house with an empty lot on both sides and then buy the lots you can have a lot of quiet. Of course in addition move to the country and you avoid a lot of sirens relative to living in the city.