Better off renting?

[WRBT]

I seriously doubt a $56,000 condo has anywhere near $200 in dues.

 

[free4now]

Good to point out the stone wall between units as a desirable feature. My condo has what I think are cinder block wallks between the units and I absolutely never have heard any noise from my next door neighbor in the 8+ years I've lived here.

But the ceiling/floors are not very acoustically protected and I hear the upstairs neighbor all the time even though they try to be quiet.

Noise issues are the one reason I would like to live in a townhome, so I could crank the stereo a bit.

 

[k-man]

It's actually interesting that this thread came up. I'm new here, but the wife and I are considering selling our paid for house here in Orlando and renting....

We paid 370K in cash for the house 18 months ago and can conservatively clear 525K if we sell (we wouldn't close until we hit our 2 year mark to avoid cap gains). We tend to move around every 3-4 years anyway (no kids) and so we think renting may be a better way for us to go.

The real kicker for us was sitting down and looking at our budget. We added up property taxes, homeowners insurance, homeowners association, pest control for the house and the lawn (we cut ourselves), maintanence, pool care, termite bond....and we're almost at 2 grand a month! Rentals in this area just have not kept pace with real estate prices and so we're seriously contemplating renting a house. We could easily rent something nice in the 2,000 range.

Throwing the 525K on top of our other investments would push up our retirement date by a good many years. We're 38 and 37 and with our other investments look to have the 3.5 million we'll need by the time we're 58 and 57. Throwing this money into the pile means early 50s.

If and when we finally do decide to settle down, we'll buy something much smaller than we have now (5 bed/3bath...3,000 sq ft). If we thought we were going to stay here for a long time we'd probably sit on the house for awhile. But this market has already cooled off considerably and looks to be flat for a number of years. I'd rather have that 525K sitting with the fine folks at Vanguard than in my home where it won't appreciate much at all. Sometimes...renting is better.

 

[justin]

I seriously doubt a $56,000 condo has anywhere near $200 in dues.

That's why I said $100-200. Just depends on the area, the amenities, and the age/condition of the condos. Also depends on how "honest" the Homeowner's association is. All the repairs and periodic upgrades (exterior painting, new roofs every 20 years, repaving the parking lots, etc.) are paid for by unit owners. Some HOA's charge enough in monthly dues to pay for all of this. However, most places seem to wait until these big repairs are necessary, then assess a one-time fee against each unit to pay for the repairs. I paid a little more than $56000 for my condo a five years ago. I bought in a 20 year old development. The HOA dues were only $130/month, but we had an assessment every few years for a few thousand bucks each time. The stucco siding had to be replaced with vinyl siding. Then the roofs had to be replaced. Then the exterior porches and decks had to be sanded and painted and rotten wood replaced. Then there was the time the parking lot had to be repaved, the pool fixed, the stormwater drainage improved, etc. etc. There's always something, and the condo unitowner pays for it one way or the other.

Now, I did have a pool, tennis court, basketball court and clubhouse at my disposal at all times.

My point in noting the HOA dues is that it is a very significant expense relative to your monthly mortgage payment. Then there is the constant flow of special assessments that you have to pay for somehow. It's probably still cheaper to own a condo and share in common expenses than it is to own a house and pay for all the repairs and maintenance items as an individual.

When you compare condo mortgage payments+the unit owner's individual maintenance costs+HOA dues+insurance+taxes+special assessments, my guess is you will be paying significantly more than a comparable individual renting.

The interest payment alone on $56000 is $280/month at 6% interest. Add in that other stuff, and you'll break $400/month pretty quick, regardless of whether you're paying $100 or $200/month for HOA dues.

There are a dozen other factors that affect the rent vs. buy decision that this simple comparison doesn't look at. appreciation, flexibility to move easily, etc.

 

[BigMoneyJim]

That idea of a stone or concrete party wall sounds very good. Let us know what you are able to find. BTW, are you moving to Dallas?

I want to move to Dallas/Fort Worth, but I'm stepping carefully because I have worries about the job market.

A friend of mine used to own a 3br 2bath townhome w/2-car carport in Grand Prairie (Dallas); it was on the end so she only had one neighbor, and that wall was stone-and-mortar. (Might've been a facade over cinder blocks, but in any case it was a nice, thick, likely soundproof firewall that separated her from the next unit.) I haven't gone looking for these, but I think I will if/when I get a stable job offer in the D/FW area.

 

[Martha]

If you rent, be sure to get renters insurance, even if your stuff isn't worth a whole lot. Rental insuance can get you liability coverage, much like homeowner's insurance does.

I have a friend whose father was in the alzeheimers unit in the nursing home. The father was a big guy and prone to swinging at people. My friend bought rental insurance for his father simply to have the liability coverage if his dad accidently hurt someone.

 

[Brat]

I have a friend whose father was in the alzeheimers unit in the nursing home.  The father was a big guy and prone to swinging at people.  My friend bought rental insurance for his father simply to have the liability coverage if his dad accidently hurt someone.

Slight change of subject, but, an alzeheimers patient shoved my Mom to the floor and broke her hip. My attny said that the patient was under the care and control of the nursing home and the patient couldn't be sued.

 

[cute fuzzy bunny]

You dont live in the US, now, do you...?

 

[BigMoneyJim]

If you rent, be sure to get renters insurance, even if your stuff isn't worth a whole lot. Rental insuance can get you liability coverage, much like homeowner's insurance does.

Agree on the rental insurance. I put off getting rental insurance for a long time; mostly procrastination, but I wasn't motivated because I had cheap stuff. When finally filling out the paperwork with the agent I started thinking in terms of replacement costs...it adds up fast. I thought the minimum $15k would be way too much but after thinking how much it would cost to buy new clothes, new furniture, new PCs, new cameras, etc I got the $25k policy. And it's cheap. I haven't given much thought to liability...perhaps I should clean up the sharp broken glass frozen in the ice by my front door...naaaah, I have insurance.

 

[MooreBonds]

We paid 370K in cash for the house 18 months ago and can conservatively clear 525K if we sell (we wouldn't close until we hit our 2 year mark to avoid cap gains). We tend to move around every 3-4 years anyway (no kids) and so we think renting may be a better way for us to go.

Correct me if I'm wrong...but if you move before the 2-out-of-the-last-5-years criteria is satisfied, can't you still get a pro-rata share of the $500k exemption?

So, if you only live there 1 year in the past 5, doesn't the IRS allow you to shelter half of the allowance (which would be $125k/person, or $250k/couple)?

 

[Marshac]

If you rent, be sure to get renters insurance, even if your stuff isn't worth a whole lot.  Rental insuance can get you liability coverage, much like homeowner's insurance does.

And it's super cheap. Mine is $6/mo.

 

[kramer]

On the 250K/500K housing exemption -- this one is a real gotcha. You can pro-rate the amount of time you have lived there up to 2 years over the past 5 years. But you must have lived there at least 2 years!!!! If you sell after living there 23 months but before 24 months, no tax break, as in zero. My father, a tax preparer, told me that some of his clients were shocked to find this out, but it was too late.

Kramer

 

[ladelfina]

We paid 370K in cash for the house 18 months ago and can conservatively clear 525K if we sell

Are you talking "clear" as in... you can sell for 895k? (prob. not..) but even a gain of 155k over 18mo. is huge! Is this really what the market is like? I mean, Florida.. hurricanes.. wow!

I am a home ownership fan, but if you like to move around anyway.. sounds like you have something to gain and not much to lose.

 

[lets-retire]

ladelfina--According to Bob Villa (bad source I know, but it's what I got) Florida has the most stringent building standards of any state, exactly for hurricanes. According to my Puerto Rican neighbor his house in Puerto Rico is built much better than these. He compared ours to matchsticks. Even with the record breaking 2004 hurricane season where Fl was hit with I think 4 storms the total amount of "scare time" when compared to "ahhh time" was very small. Everwhere has it's bad weather.

AS far as the rent-buy comparasons go I can only speak for myself. I purchased an old rental. So needless to say it was kept up to livable standards nothing more. For routine maintenance I have spent no more than I would if I rented a house. The mortgage payments were about the same as renting and I receive the tax benefeit of property taxes and interest. The way I look at it either way I would spend the same for housing. I am able to write off about 3000-4000 dollars more due to the property tax and interest (that's the amount over my standard deduction). I have sunk about 15,000 into this house to bring it up to modern. Two houses two doors down sold for 30000-45000 more than mine one and two months earlier, becasue they were in good condition.

The other thing I look at when deciding to rent or buyer is past rents. Your in your 20's. I'm too lazy to look back but I thought you said you were 26? Figuring your going to rent for 40-50 years, what have rents done in the past 40-50 year period? The short end 40 years ago was 1966. I wasn't alive then, but some of the older people might be able to say what the rent on a decent place was back then. I can't imagine it was more then 100-200 dollars. So I assumme your place is decent the next forty years your rent would would double to quadruple. If I stay in my current house that long my property tax will be about $500 per month, less than you will be paying for rent.

In my opinion rents will start rising when the housing market slows down a little more. Right now money is easy to find to buy a house. When it becomes tougher to buy, less people will be buying and more will be renting causing upward pressure on rents.

 

[Jarhead*]

The other thing I look at when deciding to rent or buyer is past rents.  Your in your 20's.  I'm too lazy to look back but I thought you said you were 26?  Figuring your going to rent for 40-50 years, what have rents done in the past 40-50 year period?  The short end 40 years ago was 1966.  I wasn't alive then, but some of the older people might be able to say what the rent on a decent place was back then.  I can't imagine it was more then 100-200 dollars. 

Lets Retire: My wife and I started out our married life in 1963 with a two bedroom furnished apt. (I'd still be young if I were a tree) Rent was $50.00 a month.

We both wanted children, so we started looking for a place to buy. Found one we liked, that had an assumable loan, but had to come up with $1300.00 that we didn't have. The owner
allowed me to sign a note for the $l300.00. (A trusting soul, that I didn't let down).

The house cost was $14,750.

The house recently sold, (Not by me, that was 5 houses ago) for $300,000.

The rent for the apt. (no longer furnished), is $l200.00 a month.

Draw your own conclusions.

Jarhead

 

[Marshac]

The rent for the apt. (no longer furnished), is $l200.00 a month.

I'm not sure how I could come up with that kind of cash... I mean, "L" is the roman numeral for 50, so that would be $50200/month... yowza!

 

[brewer12345]

  According to my Puerto Rican neighbor his house in Puerto Rico is built much better than these.  He compared ours to matchsticks.  quote]

Interesting to see this. 5 years ago when we were last on Vieques, the houses were all built like concrete bunkers exactly because of the storms. We are going back next week. I know there has been something of a building boom since the Navy left, and it will be interesting to see if the new construction is as sturdily built or if it will be matchsticks after the next storm.

 

[Brat]

Here is my take on the rent vs own issue.  I think it is wiser to own if you are young (under 60) and intend to stay in a community more than 4 years. 

At my age selling the house and renting a townhome or large apartment is beginning to make financial sense.  We want to travel a lot for several years, then move to a retirement community.  If I divide the anticipated net from our home by the current annual rent for a spacious well located townhome it comes out to 22 years when DH would be almost 90.  Yes, rents will increase but the 'house fund' account would be invested to offset much of that.  The rent would include the owners cost of property taxes and maintance which we would otherwise be paying. 

 

[k-man]

On the 250K/500K housing exemption -- this one is a real gotcha. You can pro-rate the amount of time you have lived there up to 2 years over the past 5 years. But you must have lived there at least 2 years!!!! If you sell after living there 23 months but before 24 months, no tax break, as in zero. My father, a tax preparer, told me that some of his clients were shocked to find this out, but it was too late.

Kramer

This is how we understood it, and why we are staying the full two years before we close to avoid any issues.

 

[k-man]

Are you talking "clear" as in... you can sell for 895k? (prob. not..) but even a gain of 155k over 18mo. is huge! Is this really what the market is like? I mean, Florida.. hurricanes.. wow!

I am a home ownership fan, but if you like to move around anyway.. sounds like you have something to gain and not much to lose.

No....we'd clear the difference between 370K and what we could sell it for.....somewhere in the mid 500s.

 

[k-man]

Here is my take on the rent vs own issue. I think it is wiser to own if you are young (under 60) and intend to stay in a community more than 4 years.

At my age selling the house and renting a townhome or large apartment is beginning to make financial sense. We want to travel a lot for several years, then move to a retirement community. If I divide the anticipated net from our home by the current annual rent for a spacious well located townhome it comes out to 22 years when DH would be almost 90. Yes, rents will increase but the 'house fund' account would be invested to offset much of that. The rent would include the owners cost of property taxes and maintance which we would otherwise be paying.

This is our issue.....we never tend to stay in an area for more than 4 years. And so all of the hassle of buying/selling, closing costs....well, it adds up. Currently, owning our home outright, we're still shellling out nearly 2 grand a month in expenses (not including utilities). We can rent something comparable for that same 2 grand. And since the market here has cooled considerably, we'd love to throw that 500K+ on top of our retirement accounts pile. We're only 38 and 37, but intend to keep on moving around to different parts of this country.

 

[modhatter]

I don't agree about renting. The one factor you will have a harder time grasping because of your age, is the rising cost of real estate as time goes on. When I was your age (35 yrs ago) I purchased my first home for $26,000. It was a two family and not cheap by any means for the time. . Today, I would venture to say that the home is probobly in the $500,000 to $600,000 catagory. It was a nice town in New Jersey on 1/2 acre.

By the time you retire, my guess is that the AVERAGE home will be well over 1,000,000, and perhaps even $2,000,000. Rents will also be rising in-acord with the rising real estate value.

There are ways to do both. If you are in the midwest, then you can probobly find a two family home, in wich you can live in one part and rent out the other. Or if there are no two family homes, you could take in a roommate to split the costs including utilities, phone, etc.

Yes, it is more responsibility, but you are young and can handle it. When we bought our first two family home, we took the small one bedroom appartment (much less desirable) and rented the upper appartment which was a very large 3 bedroom. The rent paid our mortgae, and we just had utilities to pay. Yes, you will have repairs, and some tenant hassles, but as I said, you are young, and what ever money you lay out on the house, you get back and then some when you sell. It is a form on in-voluntary savings.

When you retire, rents won't be $400/$500 a month where you live. They will probobly considerably higher. Thirty five years ago just before I purchased the two family home, my rent was $100 a month. This was in New Jersey, which has never been cheap. Today that apartment would probobly be fetching over $1,000 a month in rent. So you do the math.

Unless you have a VERY big portfolio when you retire. ($1,500,00 mil in dollars 35 years from now is not even giving you $200,000 in buying power. A comfortable retirement won't be $1,500,000. It will take WAY MORE.

Real estate over long time has always been a winner. You should think of it as your SECOND class of investment, because that is what it is, and it gives you a place to live as well.

Take, my advise, and go look for a two-family.

 

[ladelfina]

Was reading some of the articles on the Efficient Frontier site..
Here's one that talks about owning/renting:
http://www.efficientfrontier.com/ef/405/housing.htm

 

[Martha]

Was reading some of the articles on the Efficient Frontier site..
Here's one that talks about owning/renting:
http://www.efficientfrontier.com/ef/405/housing.htm

Good article. One reason that we may rent after we sell this place is that we are cash buyers and still low interest rates are working to continue to keep prices up.

 

[Craig]

Based upon your perspective above, I agree you should continue to rent.  You've got a low stress situation, and that is invaluable.

However, when circumstances inevitably change, consider the tax benefits of owning as well ... you can't compare $405/month rent to just the total PITI on a home.  You need to after-tax the PITI for a true comparison.

Also, considering the recent residential real estate markets, it may pay to wait, depending upon your location ... though that kind of advice has seldom fared well, historically ...

Remember that appreciation in a home can help you get to your retirement goals faster ... it has helped us greatly in the last decade.   We have been amazed at the appreciation.  There is also a handy section 1031 in the tax code that makes moving that money around much easier, without taxation.  Congress has generally been very kind to real estate.  AS they say, it isn't what you make ... it is what you keep.

Best of luck.