Better off renting?

[aaronc879]

Everyone that I talk to says that i'm throwing money away renting but I think that in my situation it's the best option. I rent a cheap, but nice, one-bedroom apartment for 405/mo utilities included except electric which is $30-$50/mo. I'm single and plan to stay that way so I don't need more room. I make a low income relative to most in this forum. Currently at $43,000/yr i'll never make more that $50,000/yr in today's dollars. But I live well below my means as I save 33% in my 401k nearly maxing it out as well as maxing out a roth every year. I'm 26 yrs old and currently have about $47,000 in retirement savings. I'm debt free and like it that way. If i bought a house on my income it would eat up almost all of my money. I'd be able to invest maybe 10% in a 401k and no roth. If I continue saving as I am I should have approx. 1.5M by the time i'm 49. I'd like to retire by 50 as I work in a physically demanding factory job. As far as throwing my money away, it would cost me 200/mo in taxes, 100-150/mo in extra utilities, and 50-100/mo in insurance and maint. if I bought a house. It seems to me that that would be throwing away money without the benefit of being able to max out my retirement accounts.

Any advice, opinions, comments, or concerns would be greatly appreciated.

 

[maddythebeagle]

At your age, I would continue to rent and sock away money into your investments. It sounds like you understand the issues.

 

[pjaye]

Sometimes renting just makes more sense. Especially in your situation. I'm in a similar boat, work for a property management company and receive heavily discounted rent, free cable, free gym membership, walk to work and live in a beautiful community and large apartment.

The extra money we save between discounted rent and market rent is invested and saved. We are also able to put 2 kids thru college and have a nice but modest RV at the river. If we owned a home a lot of our time on the weekends when were playing would be spent in home maintenance.

If we carelessly spent the savings, we would not be ahead and probably would be better off with it invested into future home equity. We are currently working with several agents to find our first rental house to purchase. I'm comfortable being a landlord and am ready to try it for my self.

 

[justin]

And you don't have to worry about the unexpected $4000 furnace replacement/new roof/water leak+damage+mold that us wonderful homeowners experience every once in a blue moon.

If I didn't have a family, I'd probably be in the 1 BR apartment complex around the corner for $500/mo like you, and bank the savings.

 

[audreyh1]

Gosh it's not just all the money you are saving. It's the TIME too. Home ownership requires X hours per week in maintenance - especially during the summer!!

Audrey

 

[Howard]

Aaron, all well and good, but out there is a sweet young thing who is going to find your common sense approach to life so attractive, and if she /you want children, then start looking for a nest.

You say you intend to stay single, boy, when old Cupid fires his dart, the best intentions etc go out the window.

I would suggest you take some time to smell the roses, you are young, enjoy your youth, you will be a long time old, eevn if you delay retiring by a short period.

My oldest son, 30, is also an Aaron, I thought we were being so unique in picking that name.

 

[CybrMike]

Wait until the housing market crashes, then get a house for what your paying in rent, and bank the appreciation that will come.

 

[aaronc879]

How do you get a house for $405/mo. Just the extra expenses alone cost at least 400/mo not counting principle and interest. The only way I could get a house for 400/mo is if I paid cash.

 

[haha]

How do you get a house for $405/mo.  Just the extra expenses alone cost at least 400/mo not counting principle and interest. The only way I could get a house for 400/mo is if I paid cash.

I'd be interested in knowing how you get an apartment for $405 a month. Last time I saw that was in 1992.

Ha

 

[sgeeeee]

Actually, it's easy to find a $400/month mortgage or a $400/month rental. You just have to go to the right dead town somewhere in middle America. There are places where $400/month buys/rents a lot of house. You may be 100 miles away from a city of any size and have to live next door to Bubba and his wife and cousin (the same person). But they'll be nice and the house will be very cheap.

 

[aaronc879]

I live in a small midwest town. Very few apartments are over 500/mo and mine was 405 when i got it 6 years ago and it hasn't gone up since.

 

[sgeeeee]

I live in a small midwest town. Very few apartments are over 500/mo and mine was 405 when i got it 6 years ago and it hasn't gone up since.

I grew up in a very small town in southern Illinois -- 100 miles from St. Louis, 300 miles from Chicago, 100 miles from Evansville, . . . Since the coal mines started closing several years ago, there are almost no jobs at all.

You can almost buy a mansion there for $40,000. You could probably make a deal to rent for free if you would take care of the property and pay the utilities.

 

[kramer]

In less expensive cities like say San Antonio you can rent a 1 bedroom apartment for ~$450/month (or less) according to a quick craigslist.com check that I just made. And I saw a 1 bedroom townhome for rent for just over $500/month.

I did not account for the fact that the craigslist listings tend to be above market price because landlords can post for free and the ones you see posted most often are the ones that did not rent right away.

I suspect that the Houston market was like this before Katrina.

Kramer

 

[lets-retire]

This has been hashed out many times. I fall squarely on the side of buying rather than renting. But I won't go into it. Good luck with your decision.

 

[free4now]

You could always move to Tulsa and move into this guy's apartment for $400 a month:

http://tulsa.craigslist.org/roo/129195248.html

As long as you "know the meaning of respect"

This was the first thing that came up in my craigslist browse.

 

[Marshac]

As long as you "know the meaning of respect"  

Good lord, from his photo it looks like if you don't know the meaning of 'respect', he will teach you. Think many people called about his place?

 

[Geo.]

Hello Aaron,
Your post caught my eye so thought I'd drop a comment in. 

These comments may or may not be relevant, as I'm a New Zealander living in NZ, but all things being equal, here are some points to consider...

You may not always have that 'cheap' rental - things/landlords change.

Invested money sometimes has the disconcerting habit of going 'belly up' on you,
property is always there, regardless.

Depending on your locality, a house will most likely experience capital gain over the years - even keeping up with investment rates.

If you own your own house, then you are not at the mercy of landlords.
It is an asset, you can sell it at any time or even rent it out to obtain some income if you wish to go 'walkabout'.

You are a young man - owning your own home will increase your kudos with potential partners. 

If you are ensconced in your own 'paid off' home before reaching retirement age, then providing you have enough income to fund food and clothing, electricity etc., you will be able to retire earlier or work less, with no worries about finding rent money or worrying that rent will increase.

By the time that you deduct what you would have paid in weekly rent anyhow, I don't know of any houses over a period of five years or more that have sold for less that what they cost the owner.

Maybe the best thing to try for, is to buy the worst house in the best street, live in it and 'do it up' at the same time. That way you will end up with a great asset that can be either enjoyed, sold, or 'put to work' as a decent rental.

As you can see, I'm for buying. But I fully realise that I do not have my finger on the US house market 'pulse' and am talking from a NZ viewpoint.
I do know though, that I have never regretted biting the bullet and saving for a house, owning a freehold property has given me a lot of freedom and allowed me early retirement.
Good luck, and good on you for thinking ahead! 
Cheers, George.

 

[Marshac]

I forgot I had made this for my brother. Could be useful for you.

http://kitchen.thealterego.com/rent_buy.xls

You will need to install the analysis toolpack for it to work.

 

[dunc0029]

I'm in about the same boat as you - I'm 27 and single and renting a 1BR.  Don't think of rent as money being "thrown away".  It's money you are exchanging for a roof over your head!  Most people who buy a home are just "throwing money away" in terms of interest to a bank (instead of a landlord), anyway.  If you don't need/want a home right now and can save a lot by NOT buying, I say stick with it.  I want a home some day, but I don't like the idea of doubling or tripling my rent payment for a mortgage payment on a median home.  That would obviously cut into my ability to save.

The best reason to buy a home is because you want a home, not to avoid "throwing money away", or missing out on a great investment, or because everyone else does it.

 

[WRBT]

For the expenses in the rent vs. own debate it seems common to compare living in a one bedroom apartment to a house. Why not compare the apartment to a small condo in expenses, since the features of the abode are what we're trying to factor out of this equation to make a comparision of expenses.

Say something like this: http://www.6URL.com/0E7L

One bedroom, one bath condo in Phoenix. No, I don't know if that's in the hood or not but $400 probably isn't going to get you a beautiful tropical oasis either.

The mortgage on $55k for 30 at 6% is $335. Throw in contents insurance and taxes you still might be coming out under $400. I've no clue how to quantify maintenance costs.

Without weighing in on what's best for anyone (a million variables there) IMO something like that is what should be compared against for the buy/rent decision if one is comfortable with their lifestyle in a small multi-dwelling structure.

 

[haha]

One thing about an apartment- you can leave pretty easily if you get some awful neighbors. Not so easy in a house or a condo.

Ha

 

[WRBT]

True.

Amplified by the more transient nature of condo residents compared to regular single family homes. There are often many rental properties in a condo unit.

 

[BigMoneyJim]

You don't have to move to the middle of nowhere to pay close to $400/month. Here you go, $425 gets you centrally located in DFW: commute to Dallas, major shopping, entertainment, airport, lakes and parks nearby. I looked at this place a while back; at this price your neighbors may not look like the Partridge family, but the area is okay and the buildings were very livable when I saw it.

Google Map of location / Apt. listing

There is a huge multi-community complex a little South of there with probably lower rents, and the place has several pools and a golf course. For some reason (airport?) this area just isn't very favored even though it is close to everything.

Anyhoo, I am going through the same thought process re: rent vs. buy. For my situation buying seems to be throwing away more money and taking away freedom.

Interesting note about comparing an apartment to a house, but in my case I tend to do that because if I'm going to be in a small place and have a neighbor at each wall I'd rather have the mobility and freedom from maintenance hassles. There are other alternatives (townhomes with stone firewalls between units), and I'll be sure to look at them when I pick my next place to live.

 

[haha]

Anyhoo, I am going through the same thought process re: rent vs. buy. For my situation buying seems to be throwing away more money and taking away freedom.

Interesting note about comparing an apartment to a house, but in my case I tend to do that because if I'm going to be in a small place and have a neighbor at each wall I'd rather have the mobility and freedom from maintenance hassles. There are other alternatives (townhomes with stone firewalls between units), and I'll be sure to look at them when I pick my next place to live.

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?

Sometimes even the layout of a building can give good acoustic isolation. My wife's apartment has only one short stretch of wall in the kitchen and dining area that abuts on another's living space. She has had 4 or 5 neighbors in that apt since she moved there, and she has never really heard any of them.

Another nice thing about apartment living is that in a nice building you are less vulnerable to burglary relative to a SFH if you like to travel. Add to that the services- an office to accept your parcels, a pool, often a health club, rec room with huge TV, etc. It amounts to a lot of stuff that would be difficult or expensive to duplicate in another environment. And then someone mentioned the women at the pool. Only at a wedding is it easier to meet a woman than at a pool.

Ha

 

[justin]

One bedroom, one bath condo in Phoenix. No, I don't know if that's in the hood or not but $400 probably isn't going to get you a beautiful tropical oasis either.

The mortgage on $55k for 30 at 6% is $335. Throw in contents insurance and taxes you still might be coming out under $400. I've no clue how to quantify maintenance costs.

Without weighing in on what's best for anyone (a million variables there) IMO something like that is what should be compared against for the buy/rent decision if one is comfortable with their lifestyle in a small multi-dwelling structure.

Homeowner's dues can be $100-200 in many places. Add that to the condo owner's costs.