Rent vs Own...the big difference

[Music Lover]

ALL subsidies. I am not against buying. I've owned and rented as it suited the situation. But here is an example of the math of owning always looks better (like every other expense and investment) when it's subsidized somehow.

And, no, doors and windows et al are not "easy" to install. For you and others maybe. But that's relative. Other people might know how but can't for other reasons. And I know many who did but didn't know how. Disaster! But they still continue to brag about it and how much money they saved (the math of owning was a loser, ya see) and how it's no trouble at all to stuff towels around the windows when it rains. Friend who does furnaces? That's a freebie. "Making friends with furnace guys and roofers and cement guys and plumbers..." shouldn't be part of the math of buying a house. Sounds a little like the article that kicked off this thread.

I don't make friends with furnace guys...I have a friend who just happens to be a furnace guy. Big difference. Many of my family and friends are in trades, most of us are handy, and we all help each other on various projects. We all come from the "we'll do it ourselves" school and we actually enjoy building decks, fences, and garages and then appreciating a job well done at the end. Other people choose to cut a cheque and let someone else do the work...that's fine, that's their choice but it's not how we do things.

So, it's not a subsidy or a freebie in my world...it's just friends helping friends like we've always done.

 

[Mr. Tightwad]

How long have you held those houses for?
And how much did you put into each house?
Are those the only houses you own?

Bought in 89, 96, and 98.

The downs were 32K, 6K and 22.5K

Had a fourth and sold it.

My theory is that even someone with low, rent controlled rent payments (which can be a great thing keeping monthly spend low) doesn't come out as good as what I described.

 

[Mr. Tightwad]

While the poster undoubtedly made money on each of these, I'd also be interested in the 'net cost of ownership' for these.

• Money out: Mortgage, Insurance, Repairs, Property Taxes, Income Tax on Rent, Carrying costs while vacant
• Money "In": Rent, Appreciation, Deductions
• Total monthly cash flow.
• Tax liability upon sale.

The poster has just over $3M in properties, and is only bringing in 1.9% of their value annually in rent (unclear if this is net of costs).

I live in one of them. I've never had a vacancy longer than 3 days, demand in Southern California takes care of that. I'd probably pay about 800K liquidating them without a 1030 exchange.

 

[Mr. Tightwad]

Don't forget, if you purchased a $500K house with a 3.5% 30-year loan (assuming you don't pay it off early), you'll pay over $300K in interest over the life of the loan, so that "$500K house" actually cost you over $800K, not including maintenance or opportunity cost.

It only looks like a simple calculation when you have a point to prove.

You only pay 800K for that home if you don't pay it off early. I started buying when I was 26 and had them all paid off at 45.

I also had 10 and 15 year loans along the way to make it easier.

 

[FREE866]

Bought in 89, 96, and 98.

The downs were 32K, 6K and 22.5K

Had a fourth and sold it.

My theory is that even someone with low, rent controlled rent payments (which can be a great thing keeping monthly spend low) doesn't come out as good as what I described.

So you put a total of $32,000 into house #1 30 years ago and today its worth over million dollars?


You put a total of $6,000 into house #2 23 years ago and and its worth 1.5 million?


and put $22,000 into house #3 21 years ago and its worth $560,000?


This sounds incredible!!

 

[Mr. Tightwad]

So you put a total of $32,000 into house #1 30 years ago and today its worth over million dollars?


You put a total of $6,000 into house #2 23 years ago and and its worth 1.5 million?


and put $22,000 into house #3 21 years ago and its worth $560,000?


This sounds incredible!!

Put 32k down for the 160K home. Now worth 560K.

Put 6k down on the 193K home (FHA loan) now worth 1.45M

Put 22.5k down on the 225K place. Now goes over 1M. And I borrowed the down from the "160" home so actually used none of my $ to get it.

I realize this wouldn't have been my results if I lived in an area with low appreciation. Long term landlording in Southern CA. is quite profitable.
That's how so many homeowners/landlords move to nearby states and buy up everything, raising the prices for the locals.

 

[Senator]

I installed the windows and doors myself and helped a contractor friend install the furnace. I paid his wholesale cost for the furnace plus for some ducting as I moved it to a better location...probably $1200 all in.

Windows and doors are easy to install, half hour or so each. I did pay a concrete cutting company $800 to cut holes in the foundation when I wanted extra basement windows. I followed right behind him and installed the windows.

I paid $6000 for kitchen cabinets and installed them myself in addition to doing the plumbing, electrical, drywall, mudding, and painting. The total cost was $7000.

That is exactly why is is difficult to compare renting vs. owning. A renter could have used that same time working more hours at a job, and investing the extra earnings. Or moved to a more modern place. Or moved closer when they got a new job. Or completed a real estate flip (or 25) while they were renting.

I do similar items in my rentals. They are easy. Numerous kitchens, furnaces, boilers, tearing out walls, running gas, plumbing and electricity for dryers, washers, etc.

Most homeowners would have been further ahead by investing an extra $100 a month for 30 years at 7%. Do not confuse the value of your personal real estate flip with home ownership.

 

[Badger]

Sometimes it doesn't have to do with the money. Sometimes it has to do with being in control of your environment, not having to deal with people above, beside, or below you, being able to make changes according to your whim, having a large outdoor living space, enjoying a garden, or having a garage and workshop.


I've lived in college dorms, efficiency apts, large apartment complexes, and houses that I own. I will have to be unable to care for myself before I leave my home. It's HOME and it's mine.


Cheers!

 

[The Cosmic Avenger]

You only pay 800K for that home if you don't pay it off early. I started buying when I was 26 and had them all paid off at 45.

I also had 10 and 15 year loans along the way to make it easier.

Exactly. The numbers don't tell the whole story anyway, but rent vs. own is never a simple equation, even if you are just looking at the numbers. There are too many variables like that.

 

[gauss]

I rented from 1990 to 1999 and bought thereafter. I invested heavily in mutual funds during the rental years. Reviewing my ROI on my house after 20 years, I suspect that financially, the house which was purchased for 219k in 1999 an now worth 252k (a 15% increase over 20 years) was not such a smart move, financially, in retrospect.

Fortunately, the house is a small value of my NW, and there was the intrinsic lifestyle benefits of living in the house so no worries.

Bottom line is that if someone tells you that it is always better to buy a house than to rent, assuming the difference in cash is invested and not spent/consumed, or to buy the biggest most expensive house that you can afford, then they are doing you a disservice.

Your own Critical Thinking will serve you better.

-gauss

 

[Music Lover]

That is exactly why is is difficult to compare renting vs. owning. A renter could have used that same time working more hours at a job, and investing the extra earnings. Or moved to a more modern place. Or moved closer when they got a new job. Or completed a real estate flip (or 25) while they were renting.

I could have worked 10 extra hours to pay someone to install a door or I could have done it myself in 1 hour. I could have also worked an extra 2 or 3 years to afford a more modern place or spent a couple hundred hours at my own pace and not worked those 2 or 3 extra years.

Most homeowners would have been further ahead by investing an extra $100 a month for 30 years at 7%. Do not confuse the value of your personal real estate flip with home ownership.

I'm not like most...I have solid and extensive DIY skills, I want to own a home, and I enjoy DIY work. It's a hobby that "pays" me quite well once you factor in how much money is saved per hour of work. For people with limited DIY skills or who don't have the desire to do the work the payoff may not be there.

My current renovation has taken about 6 weeks of full time work (spread over 4 months) but has saved me an estimated $25,000 to $30,000. That's a full year of expenses saved for 1.5 months of work that I enjoy.

 

[Ready-4-ER-at-14]

I had a house that I put a substantial amount of "sweat equity" into as well as had a mortgage for 15-20years. It tripled in value over less than 30 years.
Sounds impressive until you consider that at 7% money doubles in about 10 years. So had I bought an index fund that got 7% annually I would have had 8 times my investment.
Considering I paid property tax and interest which was not all that different than rent for perhaps a smaller place I might have been far ahead to rent.
But.. I only put down 10-20% on the house so it was leveraged money..and the return on any market index would have had to consider additions monthly as we made mortgage payments.

 

[38Chevy454]

Sometimes it doesn't have to do with the money. Sometimes it has to do with being in control of your environment, not having to deal with people above, beside, or below you, being able to make changes according to your whim, having a large outdoor living space, enjoying a garden, or having a garage and workshop.


I've lived in college dorms, efficiency apts, large apartment complexes, and houses that I own. I will have to be unable to care for myself before I leave my home. It's HOME and it's mine.


Cheers!

This is also how I view it. I absolutely can't stand living in apt/condo or having a landlord that can control aspects of my living. I don't even like living in the crowded city or suburbs. Give me my 2.5 acres out in the country with a modest house and a huge detached garage that I own and I am happy.


I am not sure you can put a simple financial evaluation of the rent vs buy decision. Too many non-financial variables to the equation. In the end, if renting or owning makes you happy, then do it. We do not always do things based purely on maximizing financial return.


I have been a landlord in the past as well. It was a good financial adventure. It also came with some headaches, maintenance and expenses to keep the rentals up; and I believe the comments that owning a rental is like a part time job. For sure the money gained from the rentals did not come from anybody but the renter's fees each month. I benefited from their money, and some tax laws favorable to rental expenses. At this stage of life I am happy to not have the rentals and just deal with my investments in traditional savings type accounts.

 

[Freedom56]

I guess some people never learned to play Monopoly well. There are those that buy prime real estate (Boardwalk, Park Place) and build and there are those who land on them and pay rent. In the end, who comes out ahead? That game should have reinforced the benefits of property ownership and location, location, location.

 

[Sunset]

I agree. I'm a DIY'er and saved a lot doing my own work. I enjoy working on my own house and it's the fastest way to get stuff done when it breaks. And when I replace something I always put in something better than what was there before.

SOME Landlords are gonna put in the cheapest crap they can find when they can "getta round toit"

fixed for ya...

 

[COcheesehead]

I guess some people never learned to play Monopoly well. There are those that buy prime real estate (Boardwalk, Park Place) and build and there are those who land on them and pay rent. In the end, who comes out ahead? That game should have reinforced the benefits of property ownership and location, location, location.

Good analogy.

Other than our current home. I also own a commercial building. Single tenant. Invested $75,000 in it in 2010. Today it’s worth about $1.1 million, about $750k of that being my equity. That’s a nice 9 year return and shows the power of leverage.

 

[Sunset]

The only thing I'm paying is what the NYC rent guidelines board allows landlords to increase the rent by...usually in the range of 1-3%...some years nothing.....I also get new appliances every time they are needed as well as apartment painted every 3 years.....


Been here 25 years and the service has been excellent....toilet breaks? I fill out a work order and it's fixed usually within 2 hours....I like it like that!

Ok, you sold me.
I do think you have a special situation, but it sounds like a great deal, although I do wonder about the NYC price appreciation you have missed out on during the past 25 years.

 

[Music Lover]

One factor often overlooked when comparing owing and renting is the size of the place. Many people that would buy a 1500 square foot house would never rent a place that big...they might rent an 800 or 900 sq ft apartment instead. When similar size places are compared the numbers will be a lot closer.

So does owning encourage people to buy more house than they really need or does renting encourage people to sacrifice space for value?

 

[Freedom56]

Good analogy.

Other than our current home. I also own a commercial building. Single tenant. Invested $75,000 in it in 2010. Today it’s worth about $1.1 million, about $750k of that being my equity. That’s a nice 9 year return and shows the power of leverage.

I bought my first brand new home when I was 25 and still single. My friends were renting and partying. By the time I was 29 I was in my third brand new home (I flipped up to larger homes) and built up a considerable amount of equity. We currently own three properties (all free and clear). What people don't understand is that real estate is a leveraged investment. For example, in 1985, I paid a $2000 deposit for a brand new home that took 7 months to complete with the balance due at closing. During the 7 month period, prices of the same model went up by $14,000. So on paper, that is a phenomenal return on a $2000 deposit that no stock market returns could match. I flipped my first home for a net gain of $28K after living in it for just 7 months. I rolled the equity into a larger home and repeated this process again until the real estate market started to soften so I stayed in the home.

 

[razztazz]

One factor often overlooked when comparing owing and renting is the size of the place. Many people that would buy a 1500 square foot house would never rent a place that big...they might rent an 800 or 900 sq ft apartment instead. When similar size places are compared the numbers will be a lot closer.
So does owning encourage people to buy more house than they really need or does renting encourage people to sacrifice space for value?

This is where it's at. This is what I was always running into when i was working. If I were to buy something I'd have to buy what's there. By and large/more or less, what everybody else wants to buy in that area. 3 bedroom/2 baths/ big yard etc etc
But if I were to rent, I was single so my general rule was: Where's the cheapest, acceptable, 1 bedroom apartment, closest to work? Always cheaper than buying.

 

[misshathaway]

I've lived in college dorms, efficiency apts, large apartment complexes, and houses that I own. I will have to be unable to care for myself before I leave my home. It's HOME and it's mine.

If your neighborhood gets gentrified like mine did, your house is still the same, but it becomes a little island in a strange, slightly hostile, place. In my case the "town" became an ugly city and the neighborhood became filled with huge characterless light-grey houses.

For me, the sense of home goes beyond the property itself. I lost my home as the demographics changed. After that it was emotionally easy to sell the house.

 

[jkern]

Growing up and living in the SF Bay Area my whole life the mantra was always buy that first home ASAP (condo,townhouse or SFH) and get into the market (even in the 60's and 70's). The idea was that whatever way the RE market went whether it's up down or sideways, you are in it and can't get priced out over time.

I don't know anyone that regrets buying their home over the long term. Short term purchases can yield very different results.

 

[razztazz]

If your neighborhood gets gentrified like mine did, your house is still the same, but it becomes a little island in a strange, slightly hostile, place. In my case the "town" became an ugly city and the neighborhood became filled with huge characterless light-grey houses.

For me, the sense of home goes beyond the property itself. I lost my home as the demographics changed. After that it was emotionally easy to sell the house.

So much for owning allowing controlling the environment. My idea of controlling my environment is to dump and run to a better place if necessary and have no or few encumbrances. Not painting the walls.

 

[Greencheese]

I think the problem here is nobody is factoring in the winners vs losers in real estate. This article below says it so well, the top 20 markets in America cleaned house on job growth and the next 20 did a little better than they proportionately should have. If you bought in one of those markets or live in an area like Southern California which has unparamount weather in the US you were a winner. But what about those who bought in say.... Flint Michigan? That real estate is borderline worthless and nobody with options will likely ever even give that location a thought any time in anyone's lifetime. Or take a look at a place like Chicago, 1 of the largest metropolitan areas in the country but due to fiscal uncertainly has not only not recovered from the 2007 market decline but will likely continue to sink further due to future income/property tax hikes that look unavoidable. Do people in those metropolitans think that buying was a great investment when they're looking at returns of -10% for the past decade, 2% annual property taxes and no positive news on the horizon?

https://www.reuters.com/article/us-...ive-weaker-ones-get-left-behind-idUSKCN1UE13B


I'm all for owning, but let's not pretend that the location of that house makes a huge difference too. For those of us who live in the midwest, real estate has mostly tread water while the coasts continue to show impressive gains. For those who bought in the "best" areas, they've done well and those are the regions that these rent vs buy articles almost always seem to originate from.

 

[Ready-4-ER-at-14]

Greencheese, my triple was in Chicago, but in a gentrifying area with good local schools and a stable neighborhood. From what I hear from a friend with ties there even some parts of Detroit are doing well.

As with everything else, luck and location, location, location are all factors.
That said I am glad I pulled some money out of the RE market here and moved closer to the burbs. But even here we are up 18% in 3 years. We bought below market and took a little risk as to what problems the RE might have though.