Rent versus Buy

[youbet]

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

 

[jazz4cash]

1) Do you rent or own? OWN
2) If you own, have you paid off your mortgage? NO
3) Do you count your home into your net worth equation? YES
4) Does your home figure into your financial plans during retirement? ONLY FOR EXPENSES

I thought the article did a fairly decent job of presenting both sides. Like so many things this question is very much a question of locality and timing, so it's no surprise personal experiences vary. Personal preference is a major factor also.......I enjoy the yardwork, but I budget for an increasing level of hired help going forward.

In our market (Wash DC Suburbs) I found a home listed at 400K and identical home available for rent at $2450/mo. The dinkytown rent vs. buy calculator breakeven point is only 1.2 to 1.7 yrs (favoring purchase) for this pair of homes.

 

[Purron]

I’m going to add another factor to consider in the “rent vs. buy” decision. First, I will answer the questions posed by MMND:

1) Do you rent or own? Own two homes, one is a rental w/positive cash flow
2) If you own, have you paid off your mortgage? One mortgage paid off
3) Do you count your home into your net worth equation? Yes
4) Does your home figure into your financial plans during retirement? Yes

This point came to mind from another thread regarding long term care insurance. It is particularly applicable to those who can’t or decide not to purchase this insurance. I know, from personal experience, how high the cost of LTC is. In fact, the cost of this care has left many couples bankrupt. As you may be aware, Medicaid will pay for nursing home care only after most of your assets are depleted. You are permitted to retain your home, one automobile, and a modest amount of other assets and income.

Therefore, those who don’t have LTC insurance may have some protection from financial ruin brought on by the cost of nursing home care by owing their home instead of renting.

Here is a brief description of how Medicaid works for nursing home care. I got it from: http://www.fool.com/retirement/retireeport/2000/retireeport000207.htm

While each state determines eligibility for Medicaid under its own rules, in general the person receiving such services may retain just a very modest amount of personal assets (less than $2,000) and only about $30 per month in income for personal needs. Certain assets such as a home, its contents, and one car are exempt. Everything else goes to the state to pay for the care provided, and that includes any pension and/or Social Security income. A spouse of someone who is in a Medicaid-approved nursing facility may keep the house, its contents, one car, up to about $82,000 in other assets, and a monthly income of some $2,000. All else goes to help pay for the nursing home care of the other spouse. And by the way, Medicaid authorities, not the family, will select the nursing home facility.

 

[travelover]

1) Do you rent or own? Own
2) If you own, have you paid off your mortgage? No, owe about $40K @4.5%
3) Do you count your home into your net worth equation? No
4) Does your home figure into your financial plans during retirement? Only to the extent that it fills the cost-of-housing need

I struggle with this whole discussion because, for me, a home is so much more than a place to eat and sleep. I live on 1.5 partially wooded acres with a pond and stream. Wildlife abounds, especially birds. I have put a lot of myself into this house and property. Everything is exactly the way I like it. I don't have to ask a landlord's permission to change anything and, for me, that is priceless. As a long time member of the community, people know me and I have a sense of respect and belonging.

So, for me, it would be like trying to decide whether it is cheaper to eat at McDonald's or your own home cooked meal - not a clean comparison.

 

[brewer12345]

So, for me, it would be like trying to decide whether it is cheaper to eat at McDonald's or your own home cooked meal - not a clean comparison.

Sounds about right. Additionally, with dogs, cat, kids, etc., most landlords would not be interested in me as a tenant.

So I'm unlikely to ever be a renter again by choice, but for the record:

1) Own.
2) Mortgage
3) Yes
4) No

Another thing missing from all of this is tax considerations. If you are in a high bracket, the tax deductions afforded by home ownership become a lot more valuable.

 

[donheff]

1) Do you rent or own? Own, residence and weekend place.

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

Yes - recently paid off on the residence. No on the weekend home (still using the deduction) but plan to pay off when DW retires next year. The calculation here was that the SWR on the amount owed on the mortgages does not come close to the amount of the mortgage (which is based on the higher amount originally mortgaged - about 10 years to go on each when paid off). I would rather do away with the mortgages than trust the equivalent lump sum to a potential short term bear immediately after retirement.

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

We argued this one before and I am sticking with my answer - yes, of course, if I am trying to answer the technical question what is your net worth (dead). No, if I am answering the question, how much do I have to live on. Then I count them both as expenses.

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

Hell yes, I plan to leave them to my kids. Or, if everything goes to hell I will sell the weekend place. Even in a lousy RE market the reduction in costs will allow a substantial cutback and whatever cash it delivers will enable some extravagances.

None of this answers the question, is it better to rent or own. If I sold my home I could rent a nice place for less than I would expect to earn on the payoff plus the cost of maintenance. But I like my house and location so I choose to stay. The weekend place is even more of a bad deal if I just tote up what it costs per weekend spent there. But that is not the equation that counts -- I LIKE having the place. Having an extra pile of money at Vanguard wouldn't return as much enjoyment.

 

[W2R]

1) Do you rent or own? Own

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

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

Yes, and my car too. I suppose that is how it's done? I consider my home to be an asset. Here's the net worth calculator on CNN/Money, which does include the house as an asset. Calculators - Net Worth Calculator

Whether or not the value of my home is included in my net worth doesn't substantially affect it, one way or another. I guess that's one of the advantages of not living in California.

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

Yes, and so does my cell phone, for example. Both affect my estimated expenses during retirement, as they would for many. Or

No, the equity in my home is not part of my portfolio and I do not plan to use it to fund my retirement. I will probably downsize by about $50K, but haven't yet planned what to do with that (probable) equity.

Having an extra pile of money at Vanguard wouldn't return as much enjoyment.

Why, shame on you! I love having my own home, too. There isn't a white wall anywhere in it. It's fun looking at the progress of my investments online, but it's more fun doing so from my own home.

 

[simple girl]

1) Do you rent or own? Both. We own but currently are renting out our residence while on assignment for DH's job. We have been renting the past ~ 2 yrs and have enjoyed it more than we thought we would.
2) If you own, have you paid off your mortgage? No
3) Do you count your home into your net worth equation? Yes, if we decide to sell and rent after FIRE. No, if we decide to continue to own and live in our home. FIRE plans very undecided right now as we are undecided whether we'd like to be PT's (perpetual travelers) for a while; if so, we may sell, or might not... It's too far off to know right now.
4) Does your home figure into your financial plans for retirement? See above

 

[FinanceDude]

I for one have NO IDEA why we are re-hashing this topic for the umpteenth time...........

One of the things mentioned in the "Millionaire Next Door" is that the "average" millonaire profiled in the book was a HOMEOWNER, had lived there MANY YEARS, and paid off their mortgage early in most cases.

There's always more complex ways to do things, and it looked like it worked out for MMND...........but like some people I like simple over complex, so I own my home, and not any rental properties because I want to avoid the headaches..........

I suppose a "hybrid" would be living in the lower half of a duplex you own, and renting out the rest or something........

 

[Coach]

1) Do you rent or own? own
2) If you own, have you paid off your mortgage? no
3) Do you count your home into your net worth equation? yes
4) Does your home figure into your financial plans during retirement? only as a place to live

Coach

 

[W2R]

I for one have NO IDEA why we are re-hashing this topic for the umpteenth time...........

One of the things mentioned in the "Millionaire Next Door" is that the "average" millonaire profiled in the book was a HOMEOWNER, had lived there MANY YEARS, and paid off their mortgage early in most cases.

There's always more complex ways to do things, and it looked like it worked out for MMND...........but like some people I like simple over complex, so I own my home, and not any rental properties because I want to avoid the headaches..........

I suppose a "hybrid" would be living in the lower half of a duplex you own, and renting out the rest or something........

Hear, hear!! What he said. Wish I had posted this. I love the simplicity of owning my own, paid off home and not having to be concerned about the relative merits of rent vs mortgage.

I wouldn't want to live in the lower half of a duplex that I own, and rent out the rest. Yuck. For me, being a landlord would be w*rk. My objective is to ER, not to w*rk.

 

[FUEGO]

1) Do you rent or own? Own
2) If you own, have you paid off your mortgage? No
3) Do you count your home into your net worth equation? Yes of course
4) Does your home figure into your financial plans during retirement? Yes - I'll either have very low housing costs or an extra amount of funds in my portfolio.

 

[lazygood4nothinbum]

It also allows me to limit property taxes since they are capped and would double if I purchased again.

None of this answers the question, is it better to rent or own. ...I LIKE having the place. Having an extra pile of money at Vanguard wouldn't return as much enjoyment.

my answer above also does not answer the rent or own question quite as expected.

in my situation, it would cost about three times in rent as i pay to live here and without florida's "save our home" homestead my taxes would increase fivefold. but that situation is particular to me because i bought the year soh came into play.

the only reason i'd consider purchasing a smaller place in florida is because if i took all my soh value with me my taxes would drop to zero plus i could pocket the change. even though i don't now want to live in florida anymore, that would give me an option to hold off on making such a decision until the future if i so desired & by when my feelings might change.

while my home is very comfortable, incredibly convenient and cheap to keep--really an excellent place to retire--i find the idea of owning now an incumberance when i just want to be free to wonder.

so really i have no idea why i answered this question because it might not relate well to me after all.

 

[Walt34]

1) Do you rent or own?

We own.

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

Yes.

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

Yes, but only as a "last resort".

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

Yes/No/Maybe. In desperate times it is a source of cash once almost all others are exhausted. But a lot of others would be far worse off than us.

 

[FUEGO]

If I was in CA, NYC or other high cost area, I'd probably rent instead of own. Where I currently live, it is approximately the same cost to rent or own a place. Maybe a little more expensive to own if I bought today instead of 5 years ago. But the transaction costs of selling a house and buying a house later don't make sense (realtor fees, redecorating/painting/fixing up, moving expenses, utility connection fees, disruptions to life, etc). If my house were an ETF and buying/selling only cost me $10.95/trade, I'd probably sell it now.

In my mind, the financial decision is driven by the market value of houses vs. the market rental rates of a similar dwelling. The emotional decision is multi-faceted and driven by too many factors to list. Ultimately, own vs rent is a personal decision and a location-specific decision.

 

[Martha]

I wouldn't want to live in the lower half of a duplex that I own, and rent out the rest. Yuck. For me, being a landlord would be w*rk. My objective is to ER, not to w*rk.

So far, I am the only poster who is doing this with our fourplex. We bought it when my husband was buying rental property and it and the other properties were work for him. We made a number of improvements and now with this property the only rental we own, it is not much work at all. The worst part is removing snow in winter, which we would have to do with a single family home. The only thing that has come up relating to tenants in the last six months was a tenant had a couple of mice and I had to empty the mouse traps because she was too grossed out.

 

[simple girl]

If I was in CA, NYC or other high cost area, I'd probably rent instead of own. Where I currently live, it is approximately the same cost to rent or own a place. Maybe a little more expensive to own if I bought today instead of 5 years ago. But the transaction costs of selling a house and buying a house later don't make sense (realtor fees, redecorating/painting/fixing up, moving expenses, utility connection fees, disruptions to life, etc). If my house were an ETF and buying/selling only cost me $10.95/trade, I'd probably sell it now.

In my mind, the financial decision is driven by the market value of houses vs. the market rental rates of a similar dwelling. The emotional decision is multi-faceted and driven by too many factors to list. Ultimately, own vs rent is a personal decision and a location-specific decision.

Nice summary of all the variables involved in this decision, and why there is no one "right" answer for everyone.

 

[W2R]

I wouldn't want to live in the lower half of a duplex that I own, and rent out the rest. Yuck. For me, being a landlord would be w*rk. My objective is to ER, not to w*rk.

So far, I am the only poster who is doing this with our fourplex. We bought it when my husband was buying rental property and it and the other properties were work for him. We made a number of improvements and now with this property the only rental we own, it is not much work at all. The worst part is removing snow in winter, which we would have to do with a single family home. The only thing that has come up relating to tenants in the last six months was a tenant had a couple of mice and I had to empty the mouse traps because she was too grossed out.

Well, I did say "For me, [...]". What one person might regard as w*rk, another would not. I still wouldn't want to do it. Our posts provide a good illustration of that fact.

I didn't realize you were the only poster who had mentioned doing that - - didn't mean to pick on you! Sorry.

 

[Bestwifeever]

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?

In answer to this post:

1) Own
2) Not yet but will before retiring
3) Absolutely not. And if I chose to rent, I personally would not consider the capital needed to generate the rent as part of my net worth, only any money each year that capital generated in excess of rent (or the loss).
4) I don't understand this question.

 

[Martha]

No problem W2R. I just wanted to mention that it hasn't been much of any work. We have good, long term tenants, and they even help me out on occasion.

 

[Khan]

1) Do you rent or own?

Own.

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

Yes, several years ago (August this year will be 30 years in the house).

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

No.

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

Only in the sense that it's cheap to live here. (I retired Dec '04)
=================================================

I grew up on and around small farms, and I like being somewhat in touch with nature.

I have an indoor/outdoor cat (former stray), a clothesline, compost bins, bird feeders, a bird bath, and most of the (small) backyard is garden. I enjoy experimenting with different plants.

The house can't be refitted to be 'senior friendly'; I can only stay here as long as my knees hold up (I'm 57, with hereditary arthritis).

I would greatly miss the plants and animals were I in a condo/apartment.

I don't know what I'll do in the future; perhaps move to that aging hippie compound?

 

[rs0460a]

1) Do you rent or own?
- Own
2) If you own, have you paid off your mortgage?
- Yes
3) Do you count your home into your net worth equation?
- No
4) Does your home figure into your financial plans during retirement?
- No (only to the extent that we don't plan on "converting" <via HELOC or reverse mortgage> to add to our retirement income. The reason we look at it from a "gross estate net worth" basis is strictly from an estate tax standpoint).

- Ron

 

[Sandy]

1) own
2) not paid off
3) part of NW but not retirement assets
4) only as a last ditch approach through a reverse mortgage if my planning turns out to be bad.

 

[haha]

I rent. Not because I think it is better in any absolute sense, but because markets seem to be temporarily soft. I can’t see what is holding up prices in my market.

Is a home part of net worth? It is, just ask a banker. But it is different in many ways from a portfolio which in turn is different from cash.

Does it figure into my retirement?

Yes. I would prefer to own long term, as I believe that the US is an inflationary place, and that well chosen residential real estate is a long term good buy. So mainly I would be buying to protect myself from rent increases.

Also, as a poster above pointed out, if you buy for cash you reduce your AGI which is used in many means testing programs (including Medicare). You also trade a non-protected asset for a protected one.

For pure lifestyle, I prefer renting as I have grown accustomed to low infrastructure demands.

Ha

 

[ChrisC]

Tell me what these answers are supposed to reveal?