Rent vs Own...the big difference

[Koolau]

It's true that there are way too many variables to give a definitive answer to "Rent vs Own." One anecdote from personal experience: Where I live now, if I sold it, I could rent it back for 5% per year. I'm sure I could (over time) make 5% on my money. Complicating this issue is that value and rents have been on an upward spiral. Who knows what rent (or value) will be in 10 years. Also complicating the issue is that HOA dues are currently 1/3 of that 5%!! In short, local rents (while by my traditional standards are "high") are actually "cheap." I already knew this as we rented out a local property for many years. I'm pretty sure we lost a bundle, BUT we preserved our 'place in Paradise' which was our goal. Regrets are for fools.

The best argument for owning (IMO) was presented by Kotlikoff and Burns in their book THE COMING GENERATIONAL STORM. I don't recall everything, but the biggest single point was that rent usually requires income (most often, all or part of which is taxable.)

As always, YMMV.

 

[Red Badger]

I've always perceived owning our homes as an indulgence. A lot of "my way or the highway" on this thread. So, not gonna debate the financials. We've substantially modified the three homes we've owned because it brings us joy. I build gardens and DW grows great sustenance in them. I build decks and drink beer and wine on them while imparting the trifecta of heat-smoke-time to dead critters.

Along the way, we've had a few lousy neighbors. Between me, the HOA covenants, and the law, we've contained all of them. Besides, I like a good fight.

We'll likely age out of this house in a few years. Arthritis is gaining on DW and has a good start on me. And then, we'll likely move to a different SE city. And do so happily as renters.

 

[Senator]

Iwonder how many people here that think owning is better than renting, also own rental properties? If owning was so much better, and the renter was getting screwed, the same people advocate owning would also own rentals.

Or how many that advocate owning, also rent. Either hotels, motels or some other vacation rentals. If owning was better, they would buy, not rent.

Renting has it's place, and is very much better than owning many times.

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.

You must own many rentals then?

 

[misshathaway]

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.

Me too. Renter from here on out. Everything including the air bed can fit in the back of my car. I love where I am, but if it changes, I can leave.

However, I have no dog and no family near here. Most people have more constraints.

Also, not the cheapest financial choice. My version of "blow that dough".

 

[Badger]

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.

There are 26 houses on my street. Counting my house there are 4 left that haven't been knocked down and replaced with a McMansion. So demographics have changed quite a lot. A few neighbors are nice folks and we talk on occasion. The rest pretty much go about with their lives and life is pleasant.



My house is 1500 sq ft. So far my initial "investment" in my painted concrete block house is now 10X what I paid for it 30 years ago. Location plays a big part in that but also the upgraded housing surrounding me. When the time comes and I am moved to a nursing home it will be knocked down like the others. But until then I will enjoy living here. Sorry others have different experiences.



Cheers!

 

[Senator]

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.

I am guessing many people in non-gentrified neighborhoods wish their neighborhood was gentrified.

That gentrification likely raised the value of your property significantly. If you are an owner, that is great. If you are a renter, not as great.

When people with money start fixing up poor neighborhoods, that’s gentrification.

 

[Music Lover]

I've always perceived owning our homes as an indulgence. A lot of "my way or the highway" on this thread. So, not gonna debate the financials. We've substantially modified the three homes we've owned because it brings us joy. I build gardens and DW grows great sustenance in them. I build decks and drink beer and wine on them while imparting the trifecta of heat-smoke-time to dead critters.

Owning a home is a lifestyle choice that goes beyond dollars and cents. Those who are looking at it strictly from a financial perspective don't have the same wants and needs as those who want a long term "home base" they can call their own.

I'd be miserable in an apartment or condo. I desire my own place with substantial outdoor space where I know it's mine and where I'm not at the whimsy of a landlords and where I can make alterations or additions if I feel like it. I've been here 22 years and will probably be here until I'm physically or mentally incapable of independent living.

I was fortunate that the numbers worked out better owning than renting but even if it had cost more I still would have bought.

 

[kgtest]

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.

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

Right! Sure if you hire everything out it all cuts into your ROI. I own a home because it offers me freedom and flexibility that most rentals and landlord bosses dont. Owning tangible property is an asset...not saying renting is not...but typically it is not an asset, it's an expense.

I rented a place one time where they wouldn't let me paint the walls. Mind you the walls really needed to be repaired, but alas, there house, there rules...not mine.

It's not always a numbers decision either...My neighborhood provides an amazing community and fellowship for my family that I have never experience with renting. Why? Transients...people come and go, move a lot sooner, there are not the proverbial "roots" that I've experienced when owning homes.

 

[Koolau]

Iwonder how many people here that think owning is better than renting, also own rental properties? If owning was so much better, and the renter was getting screwed, the same people advocate owning would also own rentals.

Or how many that advocate owning, also rent. Either hotels, motels or some other vacation rentals. If owning was better, they would buy, not rent.

Renting has it's place, and is very much better than owning many times.

I think of myself as being at least somewhat unique in that I both own AND rent. I own my home here and rent a home on the mainland. Best (and worst) of both worlds.

To your point about (forgive me if I make it too simple) "If owning is so great, why don't you rent out properties? Fair enough question. We DID that and I'm sure we lost money doing it (as pointed out above, rents here are "cheap.")

Also, being someone who rents out properties may either subject one to more leverage than they are comfortable with OR it may constitute too large a fraction of their net worth to be comfortable.

Biggest reason NOT to rent out properties (MHO): It sounds too much like w*rk, but YMMV.

 

[BeachOrCity]

ERN made a good point in the article when he talked about how people usually just rent what they need but when they own they frequently own much more home than they need.

If one owns and it is much more than one needs basically there is a lot of economic waste in there that changes the equations quite a bit.

So when comparing be sure to compare apples to apples in terms of how much home. And if you own but own too much home it IS in almost all cases a drag financially.

 

[Cobra9777]

We've been considering renting when we downsize. The alternative is to pay cash using some of the proceeds from the sale of our current house. I've been using the NYT rent/buy tool to analyze this. The tool is probably the best I've seen... VERY comprehensive and very educational to use. It allows you to easily visualize and understand the relative importance of various parameters and how they affect the conclusion.

For our situation, the numbers don't work well for renting. The latest numbers I ran in the NYT tool are for a $250K house. With our parameters, the breakeven rent is $1421. Every week, we look online at dozens of houses for sale and for rent in the area we are targeting. Bottom line is that $1421/mo rent won't get us a $250K house. It gets us a $170-200K house. The $250K houses generally rent for $1900 and up. You might see one for $1700 but it's either in poor condition or in a less desirable area or both. Certainly there is nothing even remotely comparable to what we could buy for $250K that rents for $1421.

However, in fairness, I can easily change a few parameters that tilt the conclusion in favor of renting... shorter timeframe, higher investment returns, high maintenance/renovation costs. And then of course there are the other lifestyle considerations which have already been well covered here. So it seems to me that anyone who contends that renting is always better, or buying is always better, is just not being open-minded to the nearly countless financial and non-financial factors and assumptions that people consider when deciding where to live and how to pay for it.

 

[Henry Lili]

Just happened to my cousin and husband with two kids after just one year in a place. Out you go, Land Lord selling the joint.

IMHO, the best reason to rent is to that a landlord can't upend your life at any time by kicking you out of the property. This has happened numerous times to people I know. Recently, one couple was informed the condo they are renting was being sold. Out they went!

 

[Henry Lili]

We have reviewed this in detail recently as we want to downsize and are wondering if we should sell first, rent then buy at our leisure.

OK the Annual Base costs of owning our 3200sqft home that is walking distance from a very nice beach, including RE Taxes, Insurance, HOA, Pool Maintenance, Gardening and estimated annual home maintenance (3 year averages BUT NOT including home renovations we have done in the last 10 years) is $13k

To rent a ~2000sqft home in the same development is $30k so the premium in this case is $17k. If we wanted apple to apples comparisons for a ~3000sqft home the rent would be ~$37k so those are the numbers we use for comparison.

To rent where I am would be in the $2.5k per month range, $30k annually. I own and pay $5.2k per year in prop tax. No mortgage. Have spent an average of $4.5k per year , over 15 years, on maintenance including new roof, hard wood floors and a kitchen re-do in progress. So the numbers work from an expense perspective. Owning is a PIA at times but no rent increases and no one tells me what color to paint my walls nor can evict me. Peace of mind.

 

[CaptTom]

We've been considering renting when we downsize. The alternative is to pay cash using some of the proceeds from the sale of our current house. I've been using the NYT rent/buy tool to analyze this.

That's pretty cool. Leaving all the parameters at the default which came up when the page loaded, it gives the break-even point at $884/mo rent vs. a $250K home.

That's about what I would have guessed. Rents around here, even for the tiniest apartment, are way above that.

For me (no mortgage, owned my home for going on 40 years) renting isn't even an option. Even including a recent addition, a new roof and a total kitchen gut-and-rebuild, I'm in that same $900/mo ballpark for overall housing costs.

It's kinda depressing, actually. I'm not even comfortable renting out my house to someone else. On an old house, there are too many little maintenance items that only an owner would care enough to pay attention to.

 

[The Cosmic Avenger]

That's pretty cool. Leaving all the parameters at the default which came up when the page loaded, it gives the break-even point at $884/mo rent vs. a $250K home.

That's about what I would have guessed. Rents around here, even for the tiniest apartment, are way above that.

For me (no mortgage, owned my home for going on 40 years) renting isn't even an option. Even including a recent addition, a new roof and a total kitchen gut-and-rebuild, I'm in that same $900/mo ballpark for overall housing costs.

It's kinda depressing, actually. I'm not even comfortable renting out my house to someone else. On an old house, there are too many little maintenance items that only an owner would care enough to pay attention to.

One of the most interesting things I noticed is that when I increased the rate of return to around 6-7%, which is what I'd conservatively expect over 15-30 years. the break-even rent just about doubled!

 

[tulak]

To rent where I am would be in the $2.5k per month range, $30k annually. I own and pay $5.2k per year in prop tax. No mortgage. Have spent an average of $4.5k per year , over 15 years, on maintenance including new roof, hard wood floors and a kitchen re-do in progress. So the numbers work from an expense perspective. Owning is a PIA at times but no rent increases and no one tells me what color to paint my walls nor can evict me. Peace of mind.

Great example to the OP’s article. Bad math makes it difficult to have this conversation.

 

[tulak]

One of the most interesting things I noticed is that when I increased the rate of return to around 6-7%, which is what I'd conservatively expect over 15-30 years. the break-even rent just about doubled!

I found the same thing. Small tweaks in guessing about the future rates (return, rent increase, inflation), caused the break even point to change a lot, to the point it’s somewhat meaningless.

 

[misshathaway]

I am guessing many people in non-gentrified neighborhoods wish their neighborhood was gentrified.

That gentrification likely raised the value of your property significantly. If you are an owner, that is great. If you are a renter, not as great.

The property value did go up, and with it the property taxes. The post sounded a little victim-y but the situation prompted a good life change that probably would not have otherwise happened, due to inertia.

My point was that owning a home doesn't necessarily mean stability forever. And I'm not sure now that stasis is such a good thing.

 

[Spanky]

My yearly maintenance is under $1000 averaged over the last 20 years. That includes new doors, new windows, a new kitchen, and a new furnace. Utilities, taxes, insurance etc are about $500 a month.

$20,000 for new doors, new windows, a new kitchen, and a new furnace? That's a bargain. The cost of new windows was over $30K two years ago.

 

[Music Lover]

$20,000 for new doors, new windows, a new kitchen, and a new furnace? That's a bargain. The cost of new windows was over $30K two years ago.

It depends on how many windows and if you have to pay labour.

I had 5 windows to replace plus added 2 new ones. I bought mid-grade triple panes for a little under $3000 and installed them myself. I did pay a company $800 to cut through the basement foundation so I could install the 2 new windows.

I replaced 2 steel exterior doors myself ($300 and $400) and 2 screen doors ($300 each). 5 interior doors ($100 each) plus 5 pairs of bifold closet doors ($800).

A good friend is a contractor and got me a furnace at cost. Along with a few miscellaneous parts it was $1200. I helped him install it.

I gutted my kitchen myself (free), re-insulated, moved plumbing and electrical, and put up new drywall ($500). I designed the kitchen layout and paid a company to build cabinets...$6600 for about 18 feet of maple cabinets. I installed them myself.

I also installed hardwood floor in living room, kitchen, and hallway. About $2500 including rental for stapler.

All in that's $16,600. Add a few grand more for other general maintenance, paint, baseboards, etc. (all done myself) and it's about $20,000. And it was almost 15 years ago so would probably cost a little more today.

 

[Dtail]

Just happened to my cousin and husband with two kids after just one year in a place. Out you go, Land Lord selling the joint.

Happened to us too. Landlords originally stated we can stay forever. We made the place look nice with various fits of furniture.
Landlord loved it and decided to move in themselves.

 

[Freedom56]

Iwonder how many people here that think owning is better than renting, also own rental properties? If owning was so much better, and the renter was getting screwed, the same people advocate owning would also own rentals.

Or how many that advocate owning, also rent. Either hotels, motels or some other vacation rentals. If owning was better, they would buy, not rent.

Renting has it's place, and is very much better than owning many times.



You must own many rentals then?

No rentals right now. We own three residences and use all three. We sold our rental home a long time ago. My father-in-law has many rentals (94 doors) so I guess he's winning this round of monopoly.

 

[Spanky]

It depends on how many windows and if you have to pay labour.

I had 5 windows to replace plus added 2 new ones. I bought mid-grade triple panes for a little under $3000 and installed them myself. I did pay a company $800 to cut through the basement foundation so I could install the 2 new windows.

I replaced 2 steel exterior doors myself ($300 and $400) and 2 screen doors ($300 each). 5 interior doors ($100 each) plus 5 pairs of bifold closet doors ($800).

A good friend is a contractor and got me a furnace at cost. Along with a few miscellaneous parts it was $1200. I helped him install it.

I gutted my kitchen myself (free), re-insulated, moved plumbing and electrical, and put up new drywall ($500). I designed the kitchen layout and paid a company to build cabinets...$6600 for about 18 feet of maple cabinets. I installed them myself.

I also installed hardwood floor in living room, kitchen, and hallway. About $2500 including rental for stapler.

All in that's $16,600. Add a few grand more for other general maintenance, paint, baseboards, etc. (all done myself) and it's about $20,000. And it was almost 15 years ago so would probably cost a little more today.

Cool - DIY is way cheaper!

 

[Music Lover]

Cool - DIY is way cheaper!

Definitely. A lot of the upgrades wouldn't have been done if I had to pay someone.

 

[FREE866]

One thing I'm noticing from all the "pro own" posters is that many of them can and like to do all the upkeep required which saves them a boatload. Also, it seems like they are real estate investors that have multiple places which is not what I or some people want to deal with.