renters for life a question

[LateToFIRE]

Not sure of your situation, but cash out refi’s are usually the most expensive.

Hmm, really, I haven't found that to be the case at all. Maybe, what has helped in recent history is:

(1) Not aggressive on LTV (loan-to-value) so loans have a lot of collateral coverage
(2) Income has comfortably supported debt service
(3) Liquid and investment assets have been significant relative to debt levels - enough to repay loans

So I've probably scored well in the risk models.

 

[COcheesehead]

Hmm, really, I haven't found that to be the case at all. Maybe, what has helped in recent history is:

(1) Not aggressive on LTV (loan-to-value) so loans have a lot of collateral coverage
(2) Income has comfortably supported debt service
(3) Liquid and investment assets have been significant relative to debt levels - enough to repay loans

So I've probably scored well in the risk models.

In a cash-out refinance, a new mortgage is taken out for more than your previous mortgage balance, and the difference is paid to you in cash.
You usually pay a higher interest rate or more points on a cash-out refinance mortgage compared to a rate-and-term refinance, in which a mortgage amount stays the same.

 

[LateToFIRE]

In a cash-out refinance, a new mortgage is taken out for more than your previous mortgage balance, and the difference is paid to you in cash.
You usually pay a higher interest rate or more points on a cash-out refinance mortgage compared to a rate-and-term refinance, in which a mortgage amount stays the same.

Yup, I hear you. Just has not been my experience, perhaps for the previously mentioned reasons. Some of the closing costs might be slightly higher owing to the larger amount, but difference has been negligible. Most costs would be the same (attorney fee, title search, etc.).

In fact, if I didn't mention it before, encountered a situation where I had to cash out in order to get a BETTER RATE. Bizarre? Yes. What can I tell you. Something to do with conforming loan size blah, blah, blah... I didn't need the cash but I wanted the lower rate, soooo....

 

[LateToFIRE]

In a cash-out refinance, a new mortgage is taken out for more than your previous mortgage balance, and the difference is paid to you in cash.
You usually pay a higher interest rate or more points on a cash-out refinance mortgage compared to a rate-and-term refinance, in which a mortgage amount stays the same.

Just double-checked - my LTV's are in the 50% range. and my financial assets cover the mortgages by a significant cushion, so just think that factors a lot into getting very good terms from private bank type lenders. So, might be the exception to the rule.

 

[Birdie Num Nums]

One nice thing about owning is eventually you do not pay anything more than property taxes and upkeep.

Plus insurance premiums. And, if you are one of the 74 million people (or 26%) in the US who live in a homeowner association community, HOA fees of $100s per month.

 

[LateToFIRE]

Plus insurance premiums. And, if you are one of the 74 million people (or 26%) in the US who live in a homeowner association community, HOA fees of $100s per month.

Oh wow 26% of the US in HOA's? That's a lot more than would have guessed.

 

[COcheesehead]

Plus insurance premiums. And, if you are one of the 74 million people (or 26%) in the US who live in a homeowner association community, HOA fees of $100s per month.

I pay $450 a YEAR for HOA. Hopefully renters pay insurance too. If not, not so smart.

 

[Birdie Num Nums]

The average homeowners insurance cost, as of August 2023, is ~$1,428 per $250,000 in dwelling coverage. My renters insurance is under $100 per year, and even when bundled with $1M in umbrella insurance, is about $300/year total.

 

[COcheesehead]

Renters insurance is based on the value you want to insure. Same with umbrella. It’s self selected so you may be under insured.
I pay $560/year for homeowners for a $1m dwelling. It helps that I don’t live in Florida. LOL.

 

[teej1985]

Renters insurance is based on the value you want to insure. Same with umbrella. It’s self selected so you may be under insured.
I pay $560/year for homeowners for a $1m dwelling. It helps that I don’t live in Florida. LOL.

Renters insurance premium is more about insuring the personal liability than the personal property value within the home, I would assume

 

[Andre1969]

Oh wow 26% of the US in HOA's? That's a lot more than would have guessed.

Most new development in my area requires an HOA. It's because the county doesn't want to handle the cost of roads, sidewalks, snow removal, and in some cases trash removal. So, all those things that were originally bundled into your property taxes, and could be written off in some cases, are now rolled into an HOA or condo fee. And instead of being taken care of, or subcontracted out, by the county, they're now subcontracted out by the HOA.

County employees can be pretty bad because they're like the Pope and the Mailman...in there for life. But sometimes the board of directors of an HOA will make those county employees look like Mother Theresa!

 

[bobandsherry]

Right from the mouth of one of the top investors....

"Home ownership makes sense for most Americans... All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks."

https://finance.yahoo.com/news/warren-buffetts-31-500-house-181400983.html

 

[engineernerd]

Right from the mouth of one of the top investors....

"Home ownership makes sense for most Americans... All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks."

https://finance.yahoo.com/news/warren-buffetts-31-500-house-181400983.html

That quote is from someone with a special talent for stock investing, so whether the rest of us would have made "far more money" renting and buying stocks remains uncertain...

Buffett's main point remains valid, IMHO. The right place to live is mainly about happiness, not dollars, and is therefore much more important!

 

[F.I.R.E User]

Right from the mouth of one of the top investors....

"Home ownership makes sense for most Americans... All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks."

https://finance.yahoo.com/news/warren-buffetts-31-500-house-181400983.html

So at the end the NW is more renting. Coming from the G.O.A.T WB too. It’s over. Let’s shut this thread down. Renters have won the game. Let’s go home. Let’s go home.

 

[COcheesehead]

So at the end the NW is more renting. Coming from the G.O.A.T WB too. It’s over. Let’s shut this thread down. Renters have won the game. Let’s go home. Let’s go home.

That was Warren’s guess. What was your personal experience. You a 1% er?

 

[F.I.R.E User]

Right from the mouth of one of the top investors....

"Home ownership makes sense for most Americans... All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks."

https://finance.yahoo.com/news/warren-buffetts-31-500-house-181400983.html

That was Warren’s guess. What was your personal experience. You a 1% er?

I am a lifelong renter so far.

 

[COcheesehead]

I am a lifelong renter so far.

And….

 

[mystang52]

Although it's been mentioned a few times in this thread, somewhat lost in the noise is quality of life. And that is a hard concept to put a price on. I love being a homeowner, and the freedom to do as I wish on and in my property. Maintenance is no hassle for me: in my younger days I enjoyed DIY'ing, and now I have no problem, financially or philosophically, paying someone else for any significant repairs/maintenance. Having homeowner neighbors means a common bond in caring for property, the streets, etc and overall makes for a good quality of life. With possible exception of tenants in rent controlled apartments, renters have little financial stake in where they live.
YMMV, as always, but this is more than a dollars and cents comparison.

 

[LateToFIRE]

So at the end the NW is more renting. Coming from the G.O.A.T WB too. It’s over. Let’s shut this thread down. Renters have won the game. Let’s go home. Let’s go home.

I respect what WB has accomplished. I believe nothing WB ever says publicly. He says what he needs to say for the masses for whatever business aims he has at that moment.

If this thread is somehow about "winning" vs " an exchange of ideas, thoughts, and experiences" then yeh, let's just shut it down.

 

[Gumby]

Moderator Note - the goal for all threads and posts on this forum is to learn new things from others, to seek help with our analyses and to pitch in to help others in the same way. It is not to win an argument. Strive to be helpful, not victorious.

 

[dknighd]

I'm curious if anyone rented forever and did the calculation on how much more they saved renting? And if they saved the difference between a mortgage and rent? And if they invested the down payment and how the numbers all worked out after say 30 years

The difficulty with any of these calculations is it depends on so many things. The biggest two being where you live, and what investment returns are. You could do that for the previous 30 years. But as we know, past returns do not predict future results. And real estate returns are just as difficult to predict as the stock market.



It also depends on how often you expect to move. I would rent forever if I thought I was going to move every year or two. I would only buy a place if I expected to be in it long enough to cover the transaction costs. Last I read, the typical break even time was around 3-6 years. But that could change, and probably varies.



Where we live, it is currently cheaper to buy a house than to rent a similar house/apartment/condo. But that might not be the same in other parts of the country, and, it could change.


Both of my kids recently bought a house. One bought for lifestyle reasons. There was nothing to rent that they liked. Their current monthly payment went up. The other bought for financial reasons, buying a house was cheaper than renting an apartment. Their current monthly payment went down.


I think both recognized the secret to buying a home. If you stay in it long enough, the mortgage will be paid off. Then your costs will go down. In the mean time, your home investment is leveraged, and you have a place to live.


I've looked at many 30 year calculators. My guess is that they are all wrong, but still useful.

 

[dknighd]

Moderator Note - the goal for all threads and posts on this forum is to learn new things from others, to seek help with our analyses and to pitch in to help others in the same way. It is not to win an argument. Strive to be helpful, not victorious

I'm trying to be helpful. The problem is there are no right answers. And you will not know what was the right decision for many years. It could be 30 years!

 

[dunkelblau]

If my math is right I don't think the rent/buy return difference is a big deal, as Mr Market likes to even things out in the long run.

If we compare a cash purchase median home in the USA, that should have a cap rate of ~6% on top of ~4% annual price appreciation, so pre-tax return on a home is very near the ~10% average per annum on the S&P 500 index.

Coastal California numbers have been quite different; here cap rates are only ~3%, but price appreciation has been stronger at >6% annually over the past three decades, so it's roughly the same return in total.

 

[COcheesehead]

If my math is right I don't think the rent/buy return difference is a big deal, as Mr Market likes to even things out in the long run.

If we compare a cash purchase median home in the USA, that should have a cap rate of ~6% on top of ~4% annual price appreciation, so pre-tax return on a home is very near the ~10% average per annum on the S&P 500 index.

Coastal California numbers have been quite different; here cap rates are only ~3%, but price appreciation has been stronger at >6% annually over the past three decades, so it's roughly the same return in total.

Are these based on return on home value or return on equity. They will yield very different results.

 

[dunkelblau]

Are these based on return on home value or return on equity. They will yield very different results.

I'm looking through the lens of "no debt", as that's the choice I'm making now. I have CDs maturing, do I use the proceeds to buy a home for cash and save on rent, or do I put it into SPY? My take is it's a wash, but I'm new to this, so please feel free to correct my numbers. FWIW I believe the gross rent yield where I now rent is somewhere between 5% and 6%. If they convert this place to condos, I'd choose to buy because its location seems ideal for me.