Rent versus Buy

[Bestwifeever]

Rent vs. owning:

Pro rent: I have relatives in their early 70s who sold their home and now rent in retirement--the house sale proceeds are invested separately and earn enough to pay for their apartment. They have ltc policies and no children, hate yardwork, maintenance, etc. For them it makes both financial sense and emotional sense.

Pro owning: DH and I will likely build a small house in retirement on a piece of land we have on a small lake and will spend whatever we get for our current home on it. One of his hobbies is gardening and he will want to see his work progress over the years, God willing, and it makes sense to own the place he will be enjoying. We also see it as a place for our grown children to have (if they want). So for us it makes both financial and emotional sense to own now and in the future. And as someone whose family moved many times while I was growing up, it mattered a lot to me that our children lived in the same house (not putting a value on this for anyone else--our children probably wish we had moved a few times!).

So the rent vs. own issue is the same as the pay-off vs. carrry a mortgage--whatever works for you is best.

 

[haha]

Tell me what these answers are supposed to reveal?

Your Zodiac sign.

 

[W2R]

Tell me what these answers are supposed to reveal?

The One True Path to ER?

Oh well. We have had plenty of "mortgage or no mortgage" threads, and I still love talking about that topic (even though it can get tedious for some others). So, I guess this could be interesting, too.

A poll can sometimes be more helpful (and certainly easier to read), for a thread that is simply asking questions.

 

[cute fuzzy bunny]

Your Zodiac sign.

Also that a lot of people think pretty differently about these matters, they're probably prebaked into our brains from a variety of experiences, that people will select the data that supports their preconceived notions, and that you're pretty unlikely to change anyones mind with different data.

FWIW, I own. I hate the idea of someone else telling me what I can and cant do in the place I live. I want to do things to the house and property that suit me and benefit from the work I do. I want to decide how long I live in a place and want to control my costs of living there. I also have 3 dogs, 3 cats and a 3 year old, so any property I could rent that would allow this menagerie is likely a piece of crap or a ranchy type property thats already been exposed to a lot of pets, smokers, etc. No thanks.

I also like the idea of buying a well priced house in a good growth area thats experienced steady price improvement over the last 50 years.

Of course I include it as part of my net worth. It has both a series of immediate or near immediate liquid value and can be sold. I can rent or mortgage it. I can sell and then rent with the proceeds. Its the largest single item I've purchased, is not a depreciating asset, is an appreciating asset, and has real value. Oh, and every single product for calculating net worth from the original accountants cave wall/ash combination to the modern asset allocation software includes it, as does every standard approach to determining net worth. Seems pretty slam dunk, unless you've got some prior life experiences that prohibit you from thinking that way.

Does it affect my investments? Hell yes! Again, unless you've got some hairball that makes you put the home in a lockbox, the presence of a six figure appreciating asset OUGHT to make you think differently about the rest of your investments. By taking a chunk of my net worth and allocating that to a paid off house, I have severely limited my forced out of pocket expenses. I have a store of value which has appreciated with inflation, and then some. Having made a half million+ in real estate over the last 15 or so years, its also fairly lucrative as an investment. How someone can look at bonds, cash, gold or b33ver cheese and say that has an affect on their investment strategy, yet a huge honking six figure real estate holding doesnt is a mystery to me.

Now, if I didnt know anything about home maintenance and improvement, didnt want to take care of a place, considered the family home some sacred item that couldnt ever be sold, or had some other notions...I can see why renting would appeal or why someone would exclude it from net worth or planning. Seems to me that they're shortchanging themselves and making limited decisions based on their available capabilities, but to each their own.

Any other questions? :

 

[USK Coastie]

1) Do you rent or own?
- Own
2) If you own, have you paid off your mortgage?
- Yes free and clear when constructed 2004
3) Do you count your home into your net worth equation?
- Yes 20 acres of land with 400 ft of river frontage. They are not making very much waterfront property anymore .
4) Does your home figure into your financial plans during retirement?
- Yes should we need to sell to get equity, unless we do a reverse mortgage instead. Currently we will not need to do this unless the govm't goes broke(er)i.e. no SS payments or military pension.

 

[free4now]

I rent.

I sold my condo last year at just about the top of the market. Looking at the Schiller housing price graph it's pretty clear to me that while owning was the way to go in the past, that rosy scenario isn't likely to continue into the future at least until prices revert back closer to the mean.

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

Like CFB, I don't consider myself a market timer but sometimes things are just so out of whack that it's clear the future is going to be different from the past. The housing market looks that way to me now. I wouldn't have sold unless I wanted/needed to move anyway though.

I estimate my rent is a little less than half of my landlord's carrying costs for my current place in San Francisco. Of course real estate is local and different areas will have different ratios of rent to owning costs.

 

[Notmuchlonger]

Would a home be the ultimate hedge verse high or run away inflation?

 

[haha]

Would a home be the ultimate hedge verse high or run away inflation?

"The Ultimate" is a tall order. But it would sure beat not owning a home.

Ha

 

[CuppaJoe]

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.

I rent in a 13-unit building where studio apts. now start at $1,950/mo. Never mind what I pay for my rent-controlled digs but rent-control is again being put to the test on the upcoming June ballot; it might disappear state-wide. It's a precarious lifestyle, sometimes; but then it's all about the three L's.

Interesting that you include renter's insurance; I pay about 10.50/mo. but think of it as insurance in case of liability, not so much a housing expense even though in theory it would pay something in some kinds of disasters.

Keep on posting, MMND.

 

[ChrisC]

Your Zodiac sign.

Haha, you are truly one funny guy. I am enjoying the signs these posts reveal about people, but I thought there was some greater inner truth that the OP was seeking. As for me:

1. Own 4 (1 single family house, which was our home for almost 2 decades; 2 condos, renting one and living in the other; 1 4-family apartment bldg which I inherited with my siblings)
3. Mortgage on single family house is paid off; heavy in debt on condos; apartment bldg is paid off.
3. All my assets and liabilities are included in my net worth.
4. No.

We're not viewing our next residence as an investment. We're viewing it as a luxury purchase. We plan to buy the best house we can afford for our living arrangements. I can't see me getting to the end game and delaying any more gratification. Even if it made economic sense to rent, our personal choice is to own and to own something close to our dream house.

 

[boont]

Victorian Lord

I came of age in San Francisco in the 1970's. People were trying to tell me then, that you shouldn't buy real estate because it was too expensive and it didn't cash flow. There were fools in San Francisco then, and there are fools there now. What followed was one of the greatest advances in asset prices in recent history.

In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says...

"Pacific Heights Victorian Apartments. 4 story frame Victorian, very nicely converted into 5 beautiful apartments, 2 studios, 1 large 3 room apartment, and 2 very large 4 or 5 room, 1 bedroom flats. Several of the apartments have bay views, fireplaces, and garden access, most are bright and cheerful, and 2 have decks. This is a charming San Francisco Pacific Heights Victorian in a prime rental area. Out of town seller. Price $130,000"

You can easily guess what this property is worth today, but you would miss the whole story. At the time the flats rented for $343 and $281 and the other three units for under $150 each. The rents have gone up a bit as you might imagine, but prop 13 froze the taxes and the first many years accelerated depreciation was allowed.

Now these geniuses are still giving advice. Good luck following it.

To answer the question...

3 homes

One paid for years ago, one being paid by current tenant, the other with a small mortgage.

When counting yes.

No financial plans. Living life.

 

[Zathras]

1) Do you rent or own?
Own

2) If you own, have you paid off your mortgage?
No, just bought our retirement home, but I do plan to pay it off early.

3) Do you count your home into your net worth equation?
Not for purposes of personal planning. I do for purposes of bank or other technical documentation.

4) Does your home figure into your financial plans during retirement?
Not as a source of income, we plan to live here during retirement so there will be expenses to plan for.

5)

Originally Posted by haha Your Zodiac sign.

Pisces

We love having a home and yard which we can shape to our own personalities. Not needing to worry about an owner selling our dwelling out from under us. Being free to paint the walls (or knock them out!) as we wish, when we wish. Getting to know neighbors and realizing they will typically be around years rather than months.

I understand owning isn't for everyone, but it is definately for us

 

[kaudrey]

1) Do you rent or own?

Own

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

Not yet, but I plan to before I retire, whether I am in this place or a different one.

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

Not for purposes of figuring out how much I need to retire.

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

In the sense of this: I plan to own a home, somewhere, when I retire. The home will not have a mortgage on it. Therefore, I won't have a big mortgage/rent expense to factor into my yearly budget.

 

[Zoocat]

1)
I struggle with this whole discussion because, for me, a home is so much more than a place to eat and sleep.
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.

Exactly. I can afford my home and so even though I'm sure that renting in my area would save me money, there's no way I'd compromise my quality of life for an extra profit. Another aspect to rent vs. own is that I have a large dog. Renting with a dog is a sketchy proposition. The last condo I rented hadn't been updated in probably forty years. Not many landlords want to rent to me even though my dog is absolutely perfect.

I'm surprised that this discussion has continued so long. While I'm sure it's worthwhile for the OP, it seems sort of elementary for this board. In other words, I'd bet most of us have taken RE 101 before.

 

[haha]

I came of age in San Francisco in the 1970's. People were trying to tell me then, that you shouldn't buy real estate because it was too expensive and it didn't cash flow. There were fools in San Francisco then, and there are fools there now. What followed was one of the greatest advances in asset prices in recent history.

In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says...

"Pacific Heights Victorian Apartments. 4 story frame Victorian, very nicely converted into 5 beautiful apartments, 2 studios, 1 large 3 room apartment, and 2 very large 4 or 5 room, 1 bedroom flats. Several of the apartments have bay views, fireplaces, and garden access, most are bright and cheerful, and 2 have decks. This is a charming San Francisco Pacific Heights Victorian in a prime rental area. Out of town seller. Price $130,000"

Doh! You would have to mention that! I was there, I woulda, coulda, shoulda. But I was too dumba. Or too stoneda. Or wanted to be a rock star. I can't remember exactly which impediment messed me up.

Ha

 

[CuppaJoe]

In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says...

Is that on landfill or bedrock? It's hard for a potential renter to check but it may be in or near what was once Washwomen's lagoon.

 

[Rich_by_the_Bay]

So if I am reading all this correctly, as far as advice or strategies, we have:

• Rent v. Own: depends
• 100% Equities: depends
• Buy and hold v. tactical investment scheme: depends

The things everyone does seem to agree on: start early, LBYM. No news there. And as far as how to handle your investments and retirement planning: depends.

 

[honobob]

In front of me is the original Realtor's 1973 price sheet for the property at 2059 Vallejo Street in San Francisco. Here is what it says...

"Pacific Heights Victorian Apartments. 4 story frame Victorian, very nicely converted into 5 beautiful apartments, 2 studios, 1 large 3 room apartment, and 2 very large 4 or 5 room, 1 bedroom flats. Several of the apartments have bay views, fireplaces, and garden access, most are bright and cheerful, and 2 have decks. This is a charming San Francisco Pacific Heights Victorian in a prime rental area. Out of town seller. Price $130,000"

2734 Buchanan in the same neighborhood, only 2 units and 1200 sf smaller sold for $5,100,000 in 2005. But if they put their 20% downpayment in 1973 ($26,000 times 10% market returns) they'd have over $660,000.
Nevermind!

 

[calmloki]

1) Do you rent or own? Own our home and a buncha rentals.
2) If you own, have you paid off your mortgage? Did, but borrowed against it to pay off more expensive rental commercial loans.
3) Do you count your home into your net worth equation? O yeah - positive and negative.
4) Does your home figure into your financial plans during retirement? Some dwelling does.

I think about renting sometimes, but i'm the best landlord i know, and if i get out of the business.... We are off to look at a 21 unit place that includes a 2200' main house overlooking a stream, next to a park. No way it's going to cash flow as is with the current management company, not at all sure i want to sign on for more, though if we peddled some of the other units it would be local work...

 

[FinanceDude]

Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

 

[rgarling]

Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

yes that is too nitpicky, and now, on to a related question:

Why is it that some people don't consider their home part of their net worth?

 

[W2R]

yes that is too nitpicky, and now, on to a related question:

Why is it that some people don't consider their home part of their net worth?

I have an even more fundamental question. What possible use is there for a computed net worth, other than bragging about it on a message board, or musing about it and marveling over my extravagant success in life thus far? So far, I have found no substantive, vital use for knowing my net worth at all.

The size of my portfolio seems more useful in my computations than a figure for my theoretical net worth. It's not like I'm going to hold a yard sale and get rid of every asset I own.

 

[Notmuchlonger]

Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

I know you know the answer to your own question

 

[Marquette]

Why is it that some people don't consider their home part of their net worth?

Because, if I am lucky enough to sell it, I will break even with my mortgage after fees and taxes.

 

[Rich_by_the_Bay]

The home equity and net worth issue comes up here from time to time. IIRC, the consensus most often emerging from those discussions is:

Yes, from an estate and accounting perspective your home equity counts and is traditionally part of net worth.

From a planning perspective, it is often assumed that until/unless you determine to sell, reverse, or refinance your home, it is not fruitful to include it (you'll always need a house, mortgage payment are accounted for under expenses, etc).

In my own planning, I ignore home equity until a projected downsizing which will free up the balance for general investment. Firecalc handles that just fine, by the way.