renters for life a question

[FREE866]

I bought the house I am currently living in in 1993 and paid it off in 2020. My mortgage payment was around $900 per month. Obviously, I still pay taxes, insurance, and upkeep to continue to live here. My son recently moved out and just rented a 2-bedroom apartment about a 1/2 mile away from us. He's paying $1645 a month for about 1000 sf. I think I did the right thing by buying when I did.

Mike

Taxes, insurance, and upkeep. Owning requires constant costs.and large ones. They are a money suck. There is no avoiding it. Homes obviously are great for raising families, etc. from a strict investment lens my situation, admittedly unique, served me much better.

 

[LateToFIRE]

My mothers' parents also rented for life. The lived in Brooklyn, in a walkable neighborhood, socialized a lot, and enjoyed the lifestyle. After my grandfather passed, my grandmother eventually moved into a rent-controlled apartment, which she enjoyed for approximately 20 years, before being unable to live independently, and living with my parents.

Would note that NYC is a fairly unique housing market:

- About two-thirds of the population rents, so home ownership is in the minority

- Rent regulation still exists for a significant quantity of units, which actually distorts and drives prices up in the non-regulated market

- Eviction regs are the tightest imaginable, so if you have a rent-reg'd unit, you can have it for life with some assurance

- As a result, there is a quantifiable value to having a regulated unit - landlords are often willing to pay tenants six-figure sums to vacate

 

[FREE866]

The people I know who have been happy with their rent-for-life choices have all had rent-regulated apartments. But, no question, most have to some extent lamented not participating in the crazy appreciation that r.e. market has seen over the past decades. There is one example though, where they negotiated a huge pay-out with their landlord to move out of their rent-stabilized apartment, so in a sense they did benefit from the r.e. market run-up.

Again, like you said, its individual, but the stock market returns over the last few decades, like they normally are, have been outstanding. People that lamented not participating in the real est boom probably didn't take advantage of the stock market returns as people get too emotional about that market.

 

[wrigley]

What you are missing in your comparison, how much is your house worth and how much could you be making in investment income. A $500k home in S&P (which has averaged 8% over the long term) would generate $40k per year, that's $3,300/mo.

BTW, I'm pro homeownership.

Very true. But over the past 30 years I'd still have to pay to live somewhere. Would renting versus buying have been cheaper back then.? Not sure.

Mike

 

[wrigley]

Taxes, insurance, and upkeep. Owning requires constant costs.and large ones. They are a money suck. There is no avoiding it. Homes obviously are great for raising families, etc. from a strict investment lens my situation, admittedly unique, served me much better.

 

[Major Tom]

I can't really quite grasp the argument that home repairs aren't more than $1500 either.

COcheesehead didn't say that home repairs aren't more than $1500. The exact quote was,

"The most I have dropped on a home repair over a 40 year period is $1500."

In another post, they reveal that they have owned 9 homes over a 35 year period. I had to read through multiple one sentence soundbite-like posts from him/her to get to that piece of information though. Reading the back-and-forth between him/her and F.I.R.E. User was quite dizzying! It would appear that COcheesehead's strategy has been to purchase homes in a good state of repair, and sell them before they need major maintenance. I'm sure there are extra details to the strategy as well. The majority of homeowners, as evidenced by posts from others here, will need to finance repair or maintenance items well over $1500 at some point in their home ownership journey.

 

[latexman]

Think about it. The answer is clear.

You buy new, or relatively new, homes. Before something needs replacing/remodelled, you buy and move to another new, or relatively new, home.

 

[LateToFIRE]

Again, like you said, its individual, but the stock market returns over the last few decades, like they normally are, have been outstanding. People that lamented not participating in the real est boom probably didn't take advantage of the stock market returns as people get too emotional about that market.

Depends - a couple of NYC rent-regulated-for-life friends were savvy stock market investors too and they've made out well in saving for retirement.

Buuuutttttt, nothing compares to what prime residential NYC real estate has done over the past 30 years, especially when you consider that can use [cheap] substantial leverage to super-charge returns in that equation. And then on the investor side of NYC r.e., non-regulated rents have exceeded inflation in just about every year by leaps and bounds - thanks to the scarcity created by regulated.

 

[Birdie Num Nums]

About 13 years ago, I was in a position to decide to buy or rent. I might have missed the comment but I did not see a mention of using one of the rent vs buy calculators that are found online. It seems no one on this forum would recommend making FI decision without a Firecalc or similar analysis. [snip]

This "rent vs. own" topic has come up many times in the past on this forum. One calculator sometimes mentioned is the New York Times one. I could provide the link here, but if you google the search terms "new york times rent or buy" you'll get lots of other related results that are worth checking out.

 

[COcheesehead]

You buy new, or relatively new, homes. Before something needs replacing/remodelled, you buy and move to another new, or relatively new, home.

Yep. Average stay for us in a home has been 4.5 years. Our first home was about $70k, the current one about $1m. We still managed to save and invest our way to enough assets to carry us and a few charities after we die for many, many years. You don’t need to rent to amass a pile of money.

As an aside we rented for a year when one of our homes was built. I could not live that way for long. Parking, noise, weird neighbors, transient neighbors, etc. If someone can live in that type of environment for years, more power to them.

 

[FREE866]

Depends - a couple of NYC rent-regulated-for-life friends were savvy stock market investors too and they've made out well in saving for retirement.

Buuuutttttt, nothing compares to what prime residential NYC real estate has done over the past 30 years, especially when you consider that can use [cheap] substantial leverage to super-charge returns in that equation. And then on the investor side of NYC r.e., non-regulated rents have exceeded inflation in just about every year by leaps and bounds - thanks to the scarcity created by regulated.

Well, lets just say in 1994 I had 300K and bought a one bedroom apartment in Manhattan. You probably know if thats an accurate figure so let me know....


Lets say instead I put 300K into the S and P.....its worth 4.3 million today....here is the calculator


https://www.officialdata.org/us/stocks/s-p-500/1994?amount=300000&endYear=2022


Are you telling me that apartment would be worth over 4 million today?
I'm not being snarky as I don't know.....also have to assume the ongoing costs...which every year are plenty

 

[COcheesehead]

Well, lets just say in 1994 I had 300K and bought a one bedroom apartment in Manhattan. You probably know if thats an accurate figure so let me know....


Lets say instead I put 300K into the S and P.....its worth 4.3 million today....here is the calculator


https://www.officialdata.org/us/stocks/s-p-500/1994?amount=300000&endYear=2022


Are you telling me that apartment would be worth over 4 million today?
I'm not being snarky as I don't know.....also have to assume the ongoing costs...which every year are plenty

What you are overlooking is that to get that $300k condo in 1994, your cash outlay could have been as little as $15k - 5% down. So your return is not on $300k, but on $15k.
So $15k in the S&P is worth about $216,000 and the apartment is likely over $1m.

 

[FREE866]

What you are overlooking is that to get that $300k condo in 1994, your cash outlay could have been as little as $15k - 5% down. So your return is not on $300k, but on $15k.
So $15k in the S&P is worth about $216,000 and the apartment is likely over $1m.

Well given that mortgage rates were I think close to 10% back in 1994 you're not including the over a million dollars I would have spent on paying off the mortgage on a loan that large! and the ongoing taxes, upkeep, etc
so you kind of just proved my point--thank you!

 

[LateToFIRE]

Well given that mortgage rates were I think close to 10% back in 1994 you're not including the over a million dollars I would have spent on paying off the mortgage on a loan that large! and the ongoing taxes, upkeep, etc
so you kind of just proved my point--thank you!

But, you're also not including the fact that the initial mortgage would have been refi'd a couple times to much lower rates in that period of time, and ultimately repaid.

 

[LateToFIRE]

What you are overlooking is that to get that $300k condo in 1994, your cash outlay could have been as little as $15k - 5% down. So your return is not on $300k, but on $15k.
So $15k in the S&P is worth about $216,000 and the apartment is likely over $1m.

And you're also not including the rent you paid over that period of time.

EDIT: Sorry, meant for FREE866

 

[FREE866]

And you're also not including the rent you paid over that period of time.

thats a fair point, but still my ongoing rental expenses are much lower, especially in the first 10 years.......as the calculator showed 300K is worth 4 million in 30 years.....what would a 300K apartment in 1994 in NYC be worth today? i really dont know

 

[LateToFIRE]

Well, lets just say in 1994 I had 300K and bought a one bedroom apartment in Manhattan. You probably know if thats an accurate figure so let me know....


Lets say instead I put 300K into the S and P.....its worth 4.3 million today....here is the calculator


https://www.officialdata.org/us/stocks/s-p-500/1994?amount=300000&endYear=2022


Are you telling me that apartment would be worth over 4 million today?
I'm not being snarky as I don't know.....also have to assume the ongoing costs...which every year are plenty

Let's say that you bought a 3-family brownstone in a nice gentrifying Brooklyn neighborhood in 1994 for $300K.

You might have put 10% down, so $30K. And you would have also been able to collect rental income on two units which would increase at a rate much faster than inflation, after a few years more than enough to cover your mortgage, taxes, maintenance, etc. Today that building could be worth $4-5M free and clear, and rental income would be covering the costs and putting extra $$$ in your pocket.

Meanwhile, your twin put $30K into the stock market, now worth $430K. Doesn't seem like much of a comparison does it, esp after we subtract your rent payments.

 

[LateToFIRE]

Let's say that you bought a 3-family brownstone in a nice gentrifying Brooklyn neighborhood in 1994 for $300K.

You might have put 10% down, so $30K. And you would have also been able to collect rental income on two units which would increase at a rate much faster than inflation, after a few years more than enough to cover your mortgage, taxes, maintenance, etc. Today that building could be worth $4-5M free and clear, and rental income would be covering the costs and putting extra $$$ in your pocket.

Meanwhile, your twin put $30K into the stock market, now worth $430K. Doesn't seem like much of a comparison does it, esp after we subtract your rent payments.

FYI, Look I realize that my example is very specific, as specific as your [FREE866] personal situation having a rent-regulated apartment for decades. Lot's of reasons someone might choose one over the other depending on personal preferences. But, in terms of the numbers - that's just hard, cold logic, no offense intended.

 

[FREE866]

Let's say that you bought a 3-family brownstone in a nice gentrifying Brooklyn neighborhood in 1994 for $300K.

You might have put 10% down, so $30K. And you would have also been able to collect rental income on two units which would increase at a rate much faster than inflation, after a few years more than enough to cover your mortgage, taxes, maintenance, etc. Today that building could be worth $4-5M free and clear, and rental income would be covering the costs.

Meanwhile, your twin put $30K into the stock market, now worth $430K. Doesn't seem like much of a comparison does it, esp after we subtract your rent payments.

So now you're making me a landlord to prove your point?!?!? lol




I would have ZERO interest in that then and certainly not now........



And selecting a 3 bedroom brownstone in what was probably an awful area in Brooklyn in 1994...and I would have no interest in living in Brooklyn then and dont now..........
cherry picking a hot area from 30 years ago is silly....

 

[LateToFIRE]

So now you're making me a landlord to prove your point?!?!? lol




I would have ZERO interest in that then and certainly not now........



And selecting a 3 bedroom brownstone in what was probably an awful area in Brooklyn in 1994...and I would have no interest in living in Brooklyn then and dont now..........
cherry picking a hot area from 30 years ago is silly....

But, no more silly than you cherry-picking your unique situation that would be hard to replicate today.

Anyhow, think we've spent enough energy on this one... gotta go be productive.

 

[Andre1969]

I think part of the problem is that there's a mindset out there that "only poor people rent", "renting will keep you poor", "you're only throwing money away when you rent, etc". And there's the common theme that "the only way to build intergenerational wealth is to own your home" and so on.

That idea probably brainwashes a lot of people into thinking you HAVE to own. Plus, people often tend to think binary, as if every decision is a pass/fail. Life just isn't that simple.

 

[FREE866]

But, no more silly than you cherry-picking your unique situation that would be hard to replicate today.

Anyhow, think we've spent enough energy on this one... gotta go be productive.

I can only speak to my situation. Not hypothetical. And as I’ve said I know it’s unique. And I’m grateful for it.
I gotta go be productive too- heading to the pool to do some laps, read my book and maybe take a nap.

 

[COcheesehead]

The funny thing is one of only cases that renting works is in rent controlled situations. Isn’t that what a mortgage does as well?

 

[FREE866]

I think part of the problem is that there's a mindset out there that "only poor people rent", "renting will keep you poor", "you're only throwing money away when you rent, etc". And there's the common theme that "the only way to build intergenerational wealth is to own your home" and so on.

That idea probably brainwashes a lot of people into thinking you HAVE to own. Plus, people often tend to think binary, as if every decision is a pass/fail. Life just isn't that simple.

100 %
I know numerous homeowners and I swear every year they are plunking more into their houses- renovations, boilers, ac units , painting, driveways replaced, windows, the list is endless. Not to mention you better be handy as landscaping and plumbing costs kill you. And contractors are often scummy people to boot. No thanks.

 

[COcheesehead]

Well given that mortgage rates were I think close to 10% back in 1994 you're not including the over a million dollars I would have spent on paying off the mortgage on a loan that large! and the ongoing taxes, upkeep, etc
so you kind of just proved my point--thank you!

1. You are forgetting rent. A big oversight in your math.
2. Anyone with an ounce of brains would have refinanced multiple times.
3. No one buying a one bedroom place is paying cash so leverage comes into play. The market returns are on the value of the apartment, but the individual’s return is on equity. Leverage in real estate is a huge advantage.
4. Not every homeowner is dumping tons of cash into maintenance.

That’s all I am going to say in this thread.