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-   -   Rent versus Buy (https://www.early-retirement.org/forums/f28/rent-versus-buy-32920.html)

MillionaireMommyNextDoor 01-28-2008 08:39 PM

Rent versus Buy
 
For those interested in sharing constructive conversation and a polite exchange of thoughts and ideas about this sometimes controversial topic, read this article first:

Housing mess makes buying decisions harder - Money - MSNBC.com

I'll pose the first questions:

1) Do you rent or own?
2) If you own, have you paid off your mortgage?
3) Do you count your home into your net worth equation?
4) Does your home figure into your financial plans during retirement?

TickTock 01-28-2008 08:43 PM

1. Own
2. Still have mortgage
3. Yes
4. Not so much... it's a potential source of investible assests, but then, I'd have to use the income from those assests to live somewhere else. I think of it more as 'cushion' than anything else. Keep in mind that our current house would sell for (I estimate) somewhere between 1.5 and 2.0 times our gross income. Also, not having to pay a monthly rental bill lowers overall monthly bills, which makes it easier to cut back on spending in hard times (once the mortage is paid off, that is).

Looking forward to seeing numbers on this topic! :D

Martha 01-28-2008 08:49 PM

My spouse and I are retired and we own a four unit building and live in one of the apartments. There is no mortgage on the building. We tried to sell the building last summer but had two sales fall through. We are debating whether to list it again this spring. Because it is both income property and a place to live, it has figured into our financial planning at least to some extent. By far, the best use of the property is our current use.

If we sell we likely would replace the property with a single family home. Therefore, I don't include the property when trying to calculate survivability of our portfolio. However, I believe net worth mean net worth: the value of all your assets less liabilities. So I include non-income generating assets if I care to add up our net worth.

In our part of the country, it is a close call as to whether to rent or buy. I do like the emotional aspect of owning. I am one who likes to "nest" and make a place my own with my own decorating, etc. That has value to me. I also like the perceived security of owning the dirt I live on. Maybe because I was raised by depression parents who grew up on farms.

growing_older 01-28-2008 08:50 PM

Own
Mortgage, but trying to pay off asap
No - don't count as net worth
Yes - do count as backup safety plan if I missed anything with regular FIRE plan or in case of a black swan

I do expect the after I reach FIRE, that not having a mortgage will give me more options with respect to taking taxable income from IRAs and possibly converting to Roth over years.

hankster 01-28-2008 08:50 PM

1. Own
2. $103k mortgage on property worth $160k
3. Yes
4. We're planning to sell soon and build a home geared toward retirement living.
For us, owning a home is important in ways that go beyond strictly financial
cost-benefit considerations.

DangerMouse 01-28-2008 08:52 PM

Quote:

Originally Posted by Martha (Post 607843)
Any one like to speak to the issue of rent vs. buy?

I'll bite because this is something I have done the numbers on. I would qualify that the following is based on our personal situation. Whenever I have run the numbers, due to the cost of housing vs the cost of renting it does not make sense to buy. However, being Australian and likely living in Australia in the future, I have to remind you that we do not get a tax deduction for mortgage interest.

For us the true advantage of buying would come once we were 65. Pensions are means-tested in Australia, it has nothing to do with how much you put in. So based on our current portfolio, with 20 years to go, it is unlikely we will qualify for a pension. However, when we were 65 we could buy a house using all our investments, leaving a balance of $300,000 and we would qualify for a full pension. We could also then take out a reverse mortgage to supplement our income if needed. As we don't have any children this strategy would work for our situation.

That said, we are likely going to buy a house in the near future. Even though financially it does not make sense, on an emotional level it is something we want to do. Also we have a hankering to do a renovation project once we have fired. Think that may be due to too many hours watching HGTV. Part of the need to do the renovation and making a place ours is probably due to the fact that we have moved 9 times, living in 4 different countries in the last 14 years.

Marquette 01-28-2008 08:52 PM

1) Do you rent or own?

Own. Looking to sell and then rent. Renting is for flexability in my life... I've got a farm to buy and I need to move.

2) If you own, have you paid off your mortgage?

Heck no.

3) Do you count your home into your net worth equation?

Heck no.

4) Does your home figure into your financial plans during retirement?

Current house does not. The farm does in the sense that I plan on a smaller food budget for fresh produce.

HFWR 01-28-2008 08:53 PM

1. Own
2. No
3. By definition, yes. But I don't include it in my "retirement account".
4. Not in any special sense.

I was going to point out that Intercst also contends that renting beats purchasing, but all I see over at REHP is Hocobabble...

I intend to stay where I am for the foreseeable future. I like the freedom and the peace and quiet. Plus I like having a garage.

However, every time I have to climb up to the roof, or crawl around through the insulation in the attic, or when I'm perched precariously on a step ladder, with hedge trimmer in hand, trying to get to that unreachable spot on the top of the holly topiary, I wonder how many more years I'm going to want to, or be able to, do that kind of stuff...

As for the math, for shorter periods of, say, a few years, I don't believe inflation would have much effect, so the calculation would be a fairly straightforward, apples-to-apples comparison.

cute fuzzy bunny 01-28-2008 08:54 PM

Quote:

Originally Posted by TickTock (Post 607907)
Links?


https://www.early-retirement.org/foru...light=rent+buy
https://www.early-retirement.org/foru...light=rent+buy
https://www.early-retirement.org/foru...light=rent+buy
https://www.early-retirement.org/foru...light=rent+buy
https://www.early-retirement.org/foru...light=rent+buy

And about 10 more.

DangerMouse 01-28-2008 08:57 PM

We are renters and have been for years.

unclemick 01-28-2008 08:57 PM

1. own
2. 30 yr fixed (20% down)
3. No no NO!! - carry it on the expenses side of the ledger.
4. Never - not even scrap value.

heh heh heh - We did own a duplex on the way to ER for 15 years(New Orleans) - made money not a lot but did discover I am NOT a landlord type - my hat is off to those that are - since I knew a couple successful ones. My BIL a mining engineer lost money on the two houses they bought in thirty years - They rent mostly, move a lot, live in strange places - mining being what it is.

Again beware the personal experience of one - I'm a big fan of renting - unless one can afford the frivolous expenses of owning. I paid 21k for a 1200 sq ft fish camp in 79 and 85k for 1100 sq ft in 2005 post Katrina in high cost Missouri - waaay too much for just shelter.

Plus I am jealous of California real estate - have been on and off for thirty years.

honobob 01-28-2008 09:05 PM

Quote:

Originally Posted by DangerMouse (Post 607913)
I would qualify that the following is based on our personal situation. Whenever I have run the numbers, due to the cost of housing vs the cost of renting it does not make sense to buy.

DangerMouse
What appreciation rate did you use and how did you arrive at that number? I believe that is where most people make an error when running the numbers. Thanks

TickTock 01-28-2008 09:10 PM

cute fuzzy bunny,

Many thanks! Reading...

FANOFJESUS 01-28-2008 09:13 PM

Rent VS Own
 
We own in the midwest it is cheaper. We found the cheaper homes are cheaper than rent and do not tie up so much money. Homes in the midwest go up very slow our's took about 19 years to double. So the less you put in them the better. The stock market runs circles around homes in the midwest.

MillionaireMommyNextDoor 01-28-2008 09:15 PM

1) Do you rent or own?

Rent. We were homeowners from 1987 to 2003. Now we rent a nice 4 bdrm, 3 full bath, 2 car garage home with a beautiful big yard and a covered patio. It's located in a very nice family neighborhood and is situated across from a huge park with two lakes. We pay $1295 per month in rent and $9/mo. renter's insurance. All repairs, seasonal maintenance, etc. are done promptly by the property mngmt company.

2) If you own, have you paid off your mortgage? N/A

3) Do you count your home into your net worth equation? N/A

4) Does your home figure into your financial plans during retirement?

N/A (Although our last owned home did. We sold it with the intent to downsize our lifestyle, rent, and invest our equity and monthly savings. This helped us reach FIRE.)

RunningBum 01-28-2008 09:17 PM

1. own
2. mortgage on one home I'm selling this year, no mortgage on my long-term home
3. kind of, I consider the equity I'm about to get on the this year's sale part of my net worth even though I don't currently have it in my spreadsheet. Not the permanent one.
4. Only as a final emergency plan, figuring that I can downsize if my plan isn't working, and will see that coming so I don't have to make a quick sale.

One thing I like about renting is that I don't have an owner that could sell the house from under me, forcing me to move once a lease is up. The tradeoff is that I'm a lot more locked in if the neighborhood goes bad or I have some other reason that I really want to move.

I did a rent vs. buy study 5 years ago when I bought the house I've planned all along to sell this year. It came out in favor of buy even for this short term. I looked at my assumptions and I had a more conservative 5% return on investments. My Vanguard profile says my allocation gets 9.8% historically so I think the 10% number you use is not unreasonable. I plugged in 10% into my rent vs. buy spreadsheet and it still comes out that "buy" is better. And since I only put 20% down, I've invested the other 80%, so really I'd need to go back and change my spreadsheet to account for just 20% of my house price getting a 10% return that I don't have tied up in the house. So in the Austin TX area, buying was better, by a pretty good margin.

I went through a similar exercise in Cary, NC in the early 90s. I don't have the numbers from that but also came up with a "buy" decision.

unclemick 01-28-2008 09:30 PM

Quote:

Originally Posted by rec7 (Post 607931)
We own in the midwest it is cheaper. We found the cheaper homes are cheaper than rent and do not tie up so much money. Homes in the midwest go up very slow our's took about 19 years to double. So the less you put in them the better. The stock market runs circles around homes in the midwest.

Again beware a data point of one - but down at the 'old dougnut shop' - retired Business Prof - 1100 sq ft apartment older building good neighborhood - $450 plus utilities(electric/gas) vs me $512 mortgage/taxes/insurance for 1100 sq ft house in the same neighborhood - north of Kansas City.

It will vary by size neighborhood and location but generally the above quote holds true here.

Looks like the spread between rent and buy is way more in the former 'hot RE markets'.

heh heh heh

Notmuchlonger 01-28-2008 09:38 PM

"Looks like the spread between rent and buy is way more in the former 'hot RE markets"

Seems to be that way.

NotSoonEnough 01-28-2008 09:39 PM

1) I own my house
2) Yes, I own it outright, paid off eight years ago
3) Yes, part of my NW
4) Yes, plan to sell and downsize

I rented for 20 years, I never liked having to answer to a decent landlord, or having to live with the uncertainty of seeing my rental sold to a miserable landlord... Owning my house is a personal thing, it reduces stress.

FANOFJESUS 01-28-2008 09:39 PM

But remember you are locked in at $512 his rent in 30 years will not be $450. In fact he might pass you in (I am guessing) 5 years.

Quote:

Originally Posted by unclemick (Post 607940)
Again beware a data point of one - but down at the 'old dougnut shop' - retired Business Prof - 1100 sq ft apartment older building good neighborhood - $450 plus utilities(electric/gas) vs me $512 mortgage/taxes/insurance for 1100 sq ft house in the same neighborhood - north of Kansas City.

It will vary by size neighborhood and location but generally the above quote holds true here.

Looks like the spread between rent and buy is way more in the former 'hot RE markets'.

heh heh heh



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