Importance of locking in housing costs?

[Ramen]

When it comes to renting versus owning a home after FIRE, where do you rank the importance of locking in housing costs as a reason to own? I'm thinking other things are more important, such as whether you want to own at all or whether you like a town, neighborhood, or house enough to make a purchase.

Lately I've been reconsidering my plan to rent indefinitely. It's been 10 years since I last owned, and I've really enjoyed the freedom and convenience of renting. But consumer inflation, the real estate price surge, and other developments of the past year have me worried about the possibility of runaway rent hikes during my retirement. Of course home prices are getting scary too, and I'm also concerned about being priced out forever should I want to buy again someday.

Am I just suffering from the newbie ER jitters? Should I trust that my portfolio (per FIRECalc) will keep up with inflation in general? Or is something as significant as housing expenses worth being more proactive about trying to control?

Basically, I'm on the fence now about going back to owning, and I wonder
whether the benefit of locking in housing costs (at least the mortgage portion) should be enough to sway me toward buying. This is not the only reason I'm considering owning again, but it's among the top ones. Just pondering how much weight to give it.

 

[Sunset]

I like to own mostly for the larger slice of control it give me over my own life.
I rented, and the landlord told me he was selling the place and to move out, what a pain in the butt!
Along with the landlord having a key to my place, and not being able to paint/do what I want to the place.

Those alone are reason enough to want to own.

 

[l8_apex]

It's a question only you can answer. If rents go up too much in your locale, are you willing to move somewhere with lower rents?

 

[Scuba]

Renting is generally cheaper than owning, but owning has other advantages. Is flexibility or control more important to you? If you own, costs associated with ownership still increase every year, even if the mortgage is fixed. Ownership allows you to build equity. Lots of pros and cons. We’ve chosen to own property but I do see why others might choose renting.

 

[TriumphTR3fan]

Renting is generally cheaper than owning, but owning has other advantages. Is flexibility or control more important to you? If you own, costs associated with ownership still increase every year, even if the mortgage is fixed. Ownership allows you to build equity. Lots of pros and cons. We’ve chosen to own property but I do see why others might choose renting.

This may sound like a quirky reason to own but about 2 years ago we bought an EV. Owning our own home simplifies that because it was easy to set up charging. Not owning our home would have really complicated that as we would have had to solve a major problem. Charging at home saved us about $1,500 per year in fuel. It’s not a major issue for most people today but in a few years it could be. Having a landlord would complicate that unless the landlord wanted to make the shift. It’s all about how much control over your life you want & not about EV’s. My point is to think about what you may want/need in the next few years.

 

[pjigar]

Renting is generally cheaper than owning.

Tell that to the landlords! Like everything else in life, it depends. I am a landlord and I keep a hawk eye to make sure I have positive cash flow every year on top of the equity. CAGR of RE for me has been phenomenal compared to my equity portfolio.



OP,


I don't like surprises so knowing the housing cost (which is generally the biggest ticket item in your spending bill) in FIRE is very important to me. Portfolio keeping up with the housing inflation is a hit or miss, just look at the higher education inflation over last few decades. No one really knows how the domino will fall in the future. Good luck.

 

[Dtail]

We prefer to own. One large aspect is that in Florida, the property tax increases are limited to a max of 3% yearly for ownership.
We also don't wish to be subject to a landlord's whim on selling the property at a moment's notice.

 

[Aerides]

"To lock in costs" would not be high on my list of why I own vs. rent. Because even when you own, you can decide you need/want to move, and that comes with a boatload of costs most of the time.

To have a space and place I can modify on my own terms:
To have a garden
My own pool
Converted my garage to a gym
Repaint, remodel, refurnish with an eye to the next 10 years vs. the next lease extension
If an appliance/roof/anything is misbehaving, I don't have to wait for someone else to decide repair vs. replace, and if replace is needed, I get to pick

Of course, a lot of it is location specific. But I think renting is more a benefit for someone who isn't so sure they've found their best location yet.

 

[pjigar]

^ Yes, space is the biggest reason for me too. Acreage over 10 acres does it for me.

 

[CRLLS]

"To lock in costs" would not be high on my list of why I own vs. rent. Because even when you own, you can decide you need/want to move, and that comes with a boatload of costs most of the time.

To have a space and place I can modify on my own terms:
To have a garden
My own pool
Converted my garage to a gym
Repaint, remodel, refurnish with an eye to the next 10 years vs. the next lease extension
If an appliance/roof/anything is misbehaving, I don't have to wait for someone else to decide repair vs. replace, and if replace is needed, I get to pick

Of course, a lot of it is location specific. But I think renting is more a benefit for someone who isn't so sure they've found their best location yet.

All of the items listed are very good reasons to own. Of course following those adds direct costs that one would not have while renting. When and if the landlord decides to paint, carpet or upgrade the rent may increase accordingly. Maybe the total housing cost would be equal over time, it all depends? Assuming one starts out where the rent vs own costs are equal, the biggest "financial" benefit to owning comes when the mortgage is paid off.

When an owner does decide to sell, some or all of the gains can be tax free. That would never happen with renting.

 

[38Chevy454]

Once you have enough savings to cover living expenses with some safety cushion, owning your house essentially eliminates the inflation concerns. Except for prop tax increase, my housing expenses are totally under my control.


I am another one that wants to have control over my kingdom, not a landlord. I can do what I want to my house, use it how I want, change it how I want, etc. My house also goes up in value with the rear estate market while my cost is basically constant.

Ideally the renting scenario your increased savings would keep up with inflation and cover the rent increases. But lately housing prices sure are outpacing just about all investment returns. Will housing prices come back to more normal? I think they will, but that timing and amount is unknown. Could be that prices just flatten and do not come down.

For me though it is mostly the control over my housing that overrides the pure financial aspects of the decision. A paid off house feels good and it provides a nice security for me and my budget.

 

[savory]

I am having the same question about renting vs buying right now. I have been renting since 2013. I owned most of the years from 1980 until then.

During our rental period, we did have the unfortunate experience of the landlord ending our lease about 7 months before we planned to move. Our yearly lease was up and he decided to sell. Finding another place to stay for under a year was a real problem. We found a place for 7 months but it was a major compromise. Like most problems like this, we came out of it alive.

Our experience selling our next to last house was a nightmare. That took about 12 months with each month lowering the price but not enough. I never did an analysis of the costs but I expect after new windows, fixing up the kitchen, and other costs, I did not make money after living there for about 10 years.

I have found most people do not really know the costs of their home. For example, they know their monthly payment but do not execute the analysis for a new roof, windows, plumber, lawn cutting and investment loss costs on a down payment, interest, etc. I think people on this forum are more aware than most.

The key question for me now will be length of time we will be staying in the new community. The amount of travel we will be doing which is far more worry free in a rental. It is a great feeling to just lock the door when we leave for 4 weeks and not really worry if the pipes freeze, the basement floods, etc. Not that we do not take care of the property like our own but the consequences are not the same.

Ultimately however, it will come down to finding a rental that works for us. We will avoid a property that might be sold. And it will need to be a property that meets our needs. I think the first choice will be a rental. If we can't find the right one, we will buy. At the end of the day, the property needs to be meet our lifestyle. Rentals can do that for their design and the worry-free aspect.

 

[GTFan]

It's a personal lifestyle question, not a financial one, and it can only be answered by how you want to live.

 

[Ramen]

It's a personal lifestyle question, not a financial one, and it can only be answered by how you want to live.

Thanks for the replies. This one ^ sums up how I've always felt and thought. Now my feelings and thoughts are shifting, so I appreciate all the feedback.

Over the years, I've pondered almost everything mentioned so far and have chosen to keep renting. I like low maintenance and having things taken care of. I'm renting from a corporate owner, large condo building, professionally managed. When I moved in, I was told the company strategy is to retain good tenants by not raising existing rents too much, basically transferring the hits to incoming residents. Hmm, I'm not holding anyone to the sales pitch.

On the money end, I've run many scenarios through various rent/buy calculators. Funny how you can tweak those to get the answers you secretly want!

Until a couple of months ago, I had no interest in owning again, even though the prospect of rent inflation has concerned me for a while. I figured I'd just stick it out and perhaps be willing to move to a cheaper area if needed.

Also, my elderly parents are 2+ hours away and I wonder if at some point I might need to move closer if/when they need help. This is such an unknown. It's not part of my pros/cons right now, but it's in the back of my mind as a reason to stay mobile.

Aside from that, I'm starting to feel like my current town is a good place to stay long term. In a decade, I've built up a network and the place has grown on me. Every time I think about relocating, I appreciate more and more where I am.

Now there's a small, newly built spec home in one of my favorite neighborhoods. It's been sitting for a while, which is unusual in this current market where small homes sell fast. Almost as if it's just waiting for the right buyer (yes, it seems quite overpriced).

The total monthly payment (with insurance, taxes, etc.) would be about the same as my current rent. The construction is on the high end, and I expect maintenance costs would be below average for a while. Property tax hikes here are capped at 3% plus any approved bond measures.

I've made a list of scored pros and cons, and so far it's a tie between staying in the rental and buying the house. I'm still doing research, so this could change.

The main downsides of the house are the size (might be too small) and all the unknowns about a new neighborhood that's still being built out. It's an HOA and I'm OK with the current CC&Rs, but of course they can be changed, people are people, and you never know how this kind of thing will evolve.

Anyway, this is why I asked about locking in housing costs. With my current pros and cons about even, I'm trying to figure out what's going to be the tie breaker. I know only I can answer this for myself, but I appreciate the insights of folks who have been FIREd for a while.

I could wait for my lease to come up and see how much the rent is going to change. But that's a few months out, and the spec home prices keep rising amid the current supply chain issues.

 

[brett]

We downsized and sold near the height of the market in our city. When we returned from traveling a year later we rented. Rented for the following our years.

These four years of renting were very much to our benefit. Not only did our monthly housing expenses decrease considerably our home equity, placed in the market, did very well. At a time when real estate was decreasing or flat. Especially for higher end homes.

The difference paid for four years of frequent international travel and substantially increased our investment account. We did subsequently buy again.

I do not believe that there are hard and fast rules. It depends on the real estate market where you live, short and long term, and on one's housing requirements.

 

[caninelover]

I own a townhouse that provides 'lock and leave' ability for longer periods of travel, but also has a small backyard for our garden and pets when we are home. We have HOA dues but I prefer that to fully maintaining our own property, and here we have the freedom to change the interior to our liking.

I think if your future plans include extended travel (for months or years at a time) renting makes sense. But once you make landfall again - I much prefer owning over renting. Years ago I also had the experience of getting not renewed on a lease at a very inconvenient time after the landlord sold. I can't imaging living through that in my senior years.

 

[Sunset]

Besides the personal control one has (to a degree) owning a home, there is the diversification of assets.

My grandmother owned a good sized home, and a bunch of stock in 1929.. She rented out rooms in the house and wall papered the bathroom with the stock certificates.
For her, owning the house literally saved her.

 

[MC Rider]

It does not account for the 20% down payment and all the money we have sunk into the place. But we bought in 2010 and at this point our PITI is less than half what it would cost to rent a similar place. I don't think we could afford it. Of course the market has gone bananas since then, and the value is more than double what we paid.

 

[rk911]

we currently own a single family home but we were renters for the first 4-5 years of our marriage. for us ownership with everything that goes with that is far, far preferable to renting. masters of our own destiny sort of thing.

 

[Teacher Terry]

I like to own so I can decorate how I want, don’t have to move and now that rents have skyrocketed I couldn’t afford to live here if I had to rent.

 

[RobbieB]

I never liked to rent, saw it as a temporary situation. Easy to move as needed.

I like to make a place my own. Outside and inside. Can't do that with rents.

Now I have the bonus, no more mortgage. The marina is 8 miles away.

So, if you like the location and plan to "sit a spell" then owning is good.

 

[RetiredHappy]

I have never rented. But I can say that we are now relieved that my son wanted to own his home as opposed to renting as rents have now skyrocketed. His modest 1400 sq ft home which he bought new in 2017, costs him about $14K a year to maintain, i.e. property tax, insurance, HOA and utilities. To rent an apartment with 2BR / 2BA, we are looking at about $3K per month now.

 

[Romer]

The total monthly payment (with insurance, taxes, etc.) would be about the same as my current rent.

It is a personal choice. I like owning because its mine and I can do what I want with it. I love my house and have modified it to be what I want with Solar and an extra garage.

The quote above does give a financial reason. 10 years of paying rent you have zero to show for it other than a place you HAVE lived. 10 years of owning with a payment you have equity you have built in along with an price appreciation

My daughter was renting and then we helped her buy her first house. A nice 3 bedroom mortgage payment was about the same as rent on a 2 bedroom apartment. Then she bought her next house and due to the market, had $200K of equity to apply against the new house which is much nicer

I had two houses that took a long time to sell. Both were in a bad market though. However, each new home I bought fit me better for the next phase of our lives.

I can see the benefit of renting if you want to be flexible with where you live, or live in a small condo where there is a community.

 

[Music Lover]

The quote above does give a financial reason. 10 years of paying rent you have zero to show for it other than a place you HAVE lived. 10 years of owning with a payment you have equity you have built in along with an price appreciation.

That may be true but even with a paid off house there are monthly costs that (and it's all dependent on location, of course) that can be close to what rent would be. Furnace, roof, HW tank...eventually they all have to be replaced. Plus with a house you have to allocate X hours per week for maintenance, yard work, etc.

Owning a house is as much a lifestyle decision as a financial one and it's not for everyone.

 

[Ramen]

The quote above does give a financial reason. 10 years of paying rent you have zero to show for it other than a place you HAVE lived. 10 years of owning with a payment you have equity you have built in along with an price appreciation.

This is not always true. For most of the past 10 years here, the housing market was depressed or static. My liquid investments have done far better. For the first 9 of those 10 years, I was in an apartment that cost less per month than taxes and insurance on a cheap house (not to mention maintenance and repairs). There's no doubt that I am ahead for having rented here for most of the past decade.

However, I sense the tables turning now and wonder if it's time to flip my strategy. Anyway, I already know the general pros and cons of owning vs. renting. The main factor I'm weighing in this thread is locking in costs. I don't care too much about being free to decorate, renovate, make it my own, etc. I've been there and done that and found it to be a distraction. At this point my main interest, aside from being in a place I really like, is hedging against housing cost inflation.