House renting vs buying

[DrgLrd]

Got a question for the experts here.


Age 50, just retired. Rent is around $10,000 per year depending on the exchange rate (I'm outside the US). It's a great deal and should be much more. Expenses are almost double that.



Houses are between $300k and $400k (and should be much less) and are paid in cash.



I have two choices: buy a house now and invest the $600 or $700k for income, or rent, and invest (annuitize) all $1m


Is there any scenario where renting makes financial sense? For example, if I use the $300k for a deferred annuity, could rent for 15 to 20 years and then have enough to purchase a house?

 

[Retireby45ish]

Depends on what rate of return you can get on the 300-400k if invested. If you estimate, say 3% after taxes then the equivalent rent is 300k(.03) = 9k to 400k*(0.03)= 12k. So seems like 10k is about in the ballpark. But again, this depends on the return on the case you aren’t tying up in the home. If anything you might get more than 3% over the long run so it seems like renting is slightly better.

 

[Music Lover]

$300k invested that earns just 5% gives you $15k a year with none of the hassle, legality, tax implication etc. of owning foreign property.

I'd rent for $10k a year. I'd rent if it was $20k a year.

 

[DrgLrd]

$300k invested that earns just 5% gives you $15k a year with none of the hassle, legality, tax implication etc. of owning foreign property. I'd rent for $10k a year. I'd rent if it was $20k a year.

When you say 5% what kind of product is that, something like a 10-year MYGA? That would mean I'd need to live off the income of the 700k.

Based on the housing prices here, in 10 years real estate could be up 50%.

 

[DrgLrd]

Depends on what rate of return you can get on the 300-400k if invested. If you estimate, say 3% after taxes then the equivalent rent is 300k(.03) = 9k to 400k*(0.03)= 12k. So seems like 10k is about in the ballpark. But again, this depends on the return on the case you aren’t tying up in the home. If anything you might get more than 3% over the long run so it seems like renting is slightly better.

That's what I calculated too. Some potential issues though are the dollar tanking and rent increasing...or both.

 

[Music Lover]

When you say 5% what kind of product is that, something like a 10-year MYGA? That would mean I'd need to live off the income of the 700k.

Based on the housing prices here, in 10 years real estate could be up 50%.

I don't know anything about investing, and I don't know what country you are thinking of buying property in, and I don't know what the tax implications and rules are for foreign ownership.

For me personally, I'd never feel comfortable with the potential hassle of buying a house in a foreign country especially if rent was only $10k a year. The decision goes far beyond the dollars and cents.

 

[Out of Steam]

Do you believe that your expected time in the house would be 10 years or more?

Your fairly low rent and the complexities of owning foreign property shift the balance towards renting, so it might take a longer time to justify buying than it would domestically. But rent could still get ahead of your ability to pay in the long run.

 

[DrgLrd]

Do you believe that your expected time in the house would be 10 years or more?

Your fairly low rent and the complexities of owning foreign property shift the balance towards renting, so it might take a longer time to justify buying than it would domestically. But rent could still get ahead of your ability to pay in the long run.

It would likely be the house I die in, whenever that is. And it wouldn't be in my name, it would be in wife or my kid due to no foreign ownership laws.

If I buy the house, for the next ten years I'll be getting income from the 700k.

If I don't buy the house, it's income and likely growth from the 1m, minus $100k

Double for 20 years.

 

[Music Lover]

It would likely be the house I die in, whenever that is. And it wouldn't be in my name, it would be in wife or my kid due to no foreign ownership laws.

If I buy the house, for the next ten years I'll be getting income from the 700k.

If I don't buy the house, it's income and likely growth from the 1m, minus $100k

Double for 20 years.

You're not starting with $900k. Growth starts at $1 million minus $833 a month taken out for rent.

 

[savory]

Your housing cost for ownership is more than just your mortgage. If you can find a calculator for the country you will be living, it will help you determines your cash expense over time. For example, a new roof, painting, plumbing and other such things.
If you can't find a country specific one, use one that best represents the country. Or use any one just to jog your memory on cost of ownership.

It feels to me $10k is inexpensive living if you look at nearly any place in the States and $400k is an OK home in many places. From my experience of rent vs buy, using USA calculator, your appreciation will need to be on the high end/or your cost of ownership very low to buy vs rent.

 

[DrgLrd]

From my experience of rent vs buy, using USA calculator, your appreciation will need to be on the high end/or your cost of ownership very low to buy vs rent.

Wouldn't the time frame be a major factor, meaning 10 years of rent vs appreciation may favor renting, but 30 years may favor buying?


The difficulty is that I have to decide now, when the cash is liquid, because I don't know if I'll ever have enough cash in the future for a large house purchase, considering my income will come from locked in investments like annuities.

 

[savory]

Wouldn't the time frame be a major factor, meaning 10 years of rent vs appreciation may favor renting, but 30 years may favor buying?


The difficulty is that I have to decide now, when the cash is liquid, because I don't know if I'll ever have enough cash in the future for a large house purchase, considering my income will come from locked in investments like annuities.

The main point is you will have ownership costs and appreciation is not automatic. I think many people do not calculate cost of ownership very well. I am simply suggesting you include the cost of ownership in your analysis. The calculator will share the cost factors of ownership and may guide you to the appreciation required to buy vs rent, over your selected time period.

Like any calculator, it is only as good as the input. But it will at least provide a cost of ownership which is more than calculating expected appreciation in a vacuum.

Take a few minutes and Google rent vs buy calculator and with your best guess for each question, see the outcome. Since the assumptions are difficult, you may need to try different inputs.

One of the reasons I made the calculator suggestion was it appeared that some responses were not considering cost of ownership. One nice thing about rent is cost is known, except possible increases. Cost of home ownership is always more than the purchase price. That is not to say one is better than another. But understanding your costs will help you understand return.

As for appreciation, not all houses appreciate. The home owner typically ends up with some cash but few know their real costs along the way. A rent vs buy calculator while terribly imperfect may help.

 

[calmloki]

.... One nice thing about rent is cost is known, except possible increases. ......

Why oh why is rent thought to be a known cost? I'm a landlord in one of the few states that have fixed maximum rent increases yet still manage to make money above the cost of ownership. Very common tenant lament is that the rental they had a sweetheart deal on gets sold (maybe because the softy landlord isn't making enough to compensate for expenses and hassle) and the new money grubbing landlord bumps their rent up to market or above.

We own where we live because I like to feel I'm in control of costs and master of my domain.

 

[savory]

Why oh why is rent thought to be a known cost? I'm a landlord in one of the few states that have fixed maximum rent increases yet still manage to make money above the cost of ownership. Very common tenant lament is that the rental they had a sweetheart deal on gets sold (maybe because the softy landlord isn't making enough to compensate for expenses and hassle) and the new money grubbing landlord bumps their rent up to market or above.

We own where we live because I like to feel I'm in control of costs and master of my domain.

Oops, seem to hit a nerve. The point I was trying to make was that rental costs are lease related which allows for relatively easy estimates although the guessing of percent increase in rent could be difficult except in rent control markets, like the location of your properties.

Surprise home expenses can be realized when standing in the shower and noticing how cold things have become. Not a financial problem for the renter for example.

Rent also has a control factor. I can move at the end of the lease. To that extent, I can keep my costs inside my budget. It would be wise to have a moving fund set aside.and the sense that lifestyle may require compromise. One less bathroom for example or an unfortunate location change which I see as the ultimate renting risk. But people have bought in neighborhoods that no longer work for them.

Definitely not simply one right approach.

 

[DrgLrd]

We own where we live because I like to feel I'm in control of costs and master of my domain.

And a dozen other tempting reasons.

I think I will have to either lower house budget to under $250k, or buy a place to rent and maybe in a few decades I will fix it up and move in.

There's a place I'm looking at now, the rental income is $850 and the purchase price is $215k...

 

[Love This Community]

Since you mentioned that this is the house you’d like to live in till you die, if I were you, I would just buy. This way, I’m eliminating the uncertainty that comes with being a renter. Landlord may ask you to move anytime, sell his property and the new owners may move in or increase the rent. Also, in many countries outside the US where RE is increasing at a rapid pace, inflation and corresponding rents also increase at that pace.

 

[Amykat]

It’s kind of important to know what country you are living in before giving this advice. In most cases you should be seeking this answer from very long experienced expats in that country. As an experienced expat, I have a good feeling for where you might be living and I would say that the general answer is to RENT for a long list of reasons. The most important is that you are considering putting 30 percent of your net worth in someone else’s name, in a country where the law will not protect you, and you may give your wife motivation to leave you after that point. I could write a long essay on this subject but I am only guessing the country you live in, so I would rather not. But this is the wrong place for the question.

 

[Amykat]

Also, if you are living where I think you are, $300k and up is a very excessive price for a house for someone of your means. There are many, many, more affordable choices. You mention that you have a child, but you haven’t taken into account the high cost of education?? International schools are very expensive, bilingual schools are moderately expensive but really not very good and anything lower than that is child abuse if you have choices in life. It takes a long time to learn a new country so take your time, at least rent for several years. Being near the school your child will attend is important for example. Maybe you are not thinking that far ahead??

 

[DrgLrd]

Also, if you are living where I think you are, $300k and up is a very excessive price for a house for someone of your means.

Where I'm living $300k will get you an old house in a low-end subdivision, I've been here 15 years so I am the 'experienced expat' you mentioned.

 

[Amykat]

Well maybe you are not where I guessed you were, so no more advice from me!! Good luck with it all, glad you know what you are doing in that area!

 

[RetiredHappy]

My question is do you have enough to retire? If $300K gets you a not too good house, it makes me think that cost of living can go up significantly in the near future from 2.5K expenses a month. Is working longer an option?

 

[l8_apex]

I say buy. But there isn't enough information provided to give a well-informed response.

 

[DrgLrd]

I say buy. But there isn't enough information provided to give a well-informed response.

Three options, all purchases are cash as I'm overseas:

1. Buy house to live in, end up with around $650,000

2. Don't buy, keep $1m and pay $10,000 year rent for 10 or 20 years (it won't go up much)

3. Buy house for the rental income, end up with $780,000 and $10,000 income (to pay my own rent).

 

[l8_apex]

Three options

1. Buy house to live in, end up with around $650,000

2. Don't buy, keep $1m and pay $10,000 year rent for 10 or 20 years (it won't go up much)

3. Buy house for the rental income, end up with $780,000 and $10,000 income (to pay my own rent).

What about a margin loan? (big upside but also big potential downside)

In the last year I've converted about half of my mortgage debt to margin loans.

 

[DrgLrd]

What about a margin loan? (big upside but also big potential downside)

In the last year I've converted about half of my mortgage debt to margin loans.

Just edited my post, all house purchases are cash, I'm outside the US.