Renting (maybe permanently) after FIRE?

[aja8888]

I would be fine renting. I'll use my father as an example. My DF and DM moved into a 55+ apartment a few years ago. My DM passed less than a year after moving. It has been great for my DF to have all those people around. He is now 90. He has everything there. Groceries delivered, medical care coming to his apartment, social activities, gym, swimming pool, walking path, ....

I have stayed there many times. They have apartments for family to rent when visiting. At night, that place is so quiet. It is like everyone goes to bed at 8pm. I could easily see my DW and I living there. We could lock up the apartment and hit the road whenever we wanted. It is also a nice place to age in once one doesn't go out much any more.

I think it will also make things a lot easier once my DF passes. We won't have to clean out 50 years worth of stuff from a house and then sell the house. My DF has the money from the house to spend as he chooses.

If a rental gets bad for whatever reason or one gets the itch to move, then one can easily relocate.

This is my plan also. I don't need a 1,500 sq. ft. house at 81 for me and my small dog.

 

[rkser]

I would go with ‘It depends’ ,

We have been owning a house since last 32 yrs, in our 3rd down sized one now.
Before that we moved to different cities & we rented for a few yrs at a time.

We try to decrease the headaches of owning a house by hiring out services for Lawn Care, Pressure Washing, Handy Man & House Cleaning.

We have found owning gives us a sense of stability, familiar neighbors & neighborhood, less crime (relatively speaking).
We have a 3/2 modest sized home, in case our friends / children visit us from different parts of the country.
It is not a overwhelmingly large house to maintain. We have a fenced yard which makes it suitable for owning our dog.

We may save some by moving to an apartment, but in our case it is not worth it at this stage of the game.

But never say never, after about 10yrs in future who knows conditions may change & we may be looking for an apartment.

 

[imnontrad]

That really may depend on the area. When I moved to the area I lived 10 years ago, I looked at renting. I saw really crappy apartments for $1,000 or more. Then I saw a place I could buy and the mortgage with escrow was less than $700 - and was about 3 times the size. So I bought and was able to pay it off completely within 3 years - and it has doubled in estimated value.
BUT the rea I moved from, I would have been a LOT better off if I had rented instead of purchased.

 

[Alex The Great]

Renting is fine, but how do you account for inflation? It may be OK if let's say you sell your house at 85 and pass away at 90. But what about moving into apartment at 65 and live all the way till 95 there? Also for 55+ retirement place which has been mentioned above, it is typical to raise the fee every year with inflation (or beyond that). Meantime, here in CA we have property tax capped growing within 2% every year.

 

[aja8888]

Renting is fine, but how do you account for inflation? It may be OK if let's say you sell your house at 85 and pass away at 90. But what about moving into apartment at 65 and live all the way till 95 there? Also for 55+ retirement place which has been mentioned above, it is typical to raise the fee every year with inflation (or beyond that). Meantime, here in CA we have property tax capped growing within 2% every year.

You can't just look at property tax when deciding to rent vs. own. I have done both and currently looking at selling my house and renting. Don't forget about other costs of owning like insurance (getting more expensive all the time), upkeep, utility savings (less use, some costs covered by apartment owner), HOA fees, etc.

I like my house, all four bedrooms of it with only me and my 17 pound dog living in it. But it's all wasted space.

 

[Koolau]

Within a given area, you get a feel for these things. In our area, I can rent my condo unit for around $2600/month. I expect that to go to $3000 soon because HOA dues have risen dramatically to cover new, increased insurance costs. So now, as owner, it costs me half the rent just for the HOA dues. Considering the opportunity costs of a $700K investment are at least 4/12% of $700K (or $2300), RENT is a bargain!

Will that change. Of course. Rent will go up, but rents have been a similar bargain in this area for as long as I have been aware of rents (since early 80's).

There are lots of things that go into the rent vs own question. But pure economics have favored renting here for 40 years (or more). YMMV

 

[aja8888]

Within a given area, you get a feel for these things. In our area, I can rent my condo unit for around $2600/month. I expect that to go to $3000 soon because HOA dues have risen dramatically to cover new, increased insurance costs. So now, as owner, it costs me half the rent just for the HOA dues. Considering the opportunity costs of a $700K investment are at least 4/12% of $700K (or $2300), RENT is a bargain!

Will that change. Of course. Rent will go up, but rents have been a similar bargain in this area for as long as I have been aware of rents (since early 80's).

There are lots of things that go into the rent vs own question. But pure economics have favored renting here for 40 years (or more). YMMV

Rent Vs. own calculators have been around since stone tablets. It's not a hard decision for the area one lives in. But, like me (Widower, one small dog), owning a home has some other values (or negatives) that one can't put in a calculator.

 

[Koolau]

Rent Vs. own calculators have been around since stone tablets. It's not a hard decision for the area one lives in. But, like me (Widower, one small dog), owning a home has some other values (or negatives) that one can't put in a calculator.

Yep. Lots of other things besides pure economics. But it's always a good idea to have a complete understanding of the economics of any go-no-go situation.

 

[Diogenes]

Renting is fine, but how do you account for inflation? It may be OK if let's say you sell your house at 85 and pass away at 90. But what about moving into apartment at 65 and live all the way till 95 there? Also for 55+ retirement place which has been mentioned above, it is typical to raise the fee every year with inflation (or beyond that). Meantime, here in CA we have property tax capped growing within 2% every year.

Suppose that somebody moves to big-city California right now... San Diego, LA, SF/bay area. Suppose that a person has enough cash to buy, say $1.3M, but is considering renting and investing the cash in stock/bond indices. What would the property tax be? Insurance? Other costs of ownership? What should a person do? What would you do, putting yourself in this hypothetical situation?

 

[ShokWaveRider]

We are in the process of making this decision as I type, rent vs buy in retirement that is. Our home is currently for sale, we have no loans or mortgages on it, it is currently under offer and hopefully there will be no issues.

We are at least planning on renting till we find a new home to buy as we are very picky. If we are going to purchase a new home, it must be within 2 years so we can take advantage of Tax Portability, that is a thing in Florida. We have a lot of tax savings after 17 years in our current home.

Homes we are looking at renting go for about $3k a month, so $36k a year. Our home will yield ~$1.2m in cash which we will stash in MM as we do not do the stock market anymore. Currently SNAXX is yielding 4.35%.

But we do not get any tax benefits by renting and have to pay tax on our MM returns. It is a decision that we are currently mulling.

 

[Koolau]

Suppose that somebody moves to big-city California right now... San Diego, LA, SF/bay area. Suppose that a person has enough cash to buy, say $1.3M, but is considering renting and investing the cash in stock/bond indices. What would the property tax be? Insurance? Other costs of ownership? What should a person do? What would you do, putting yourself in this hypothetical situation?

I would have to change the premise of this question. For many reasons, I'd never buy in California. 'Nuff said.

Having said that, the calculations are similar where I live (as illustrated in #83 above). The big difference between California and Hawaii is the Real Estate tax situation. Our RE taxes are the lowest in the nation (on a % of value basis).

Of course what I did in this "hypothetical" was to buy. If I were to do it now, I believe I would probably rent. Have I considered selling and renting. Yes. Will I? Probably not. Inertia of such a move would be almost insurmountable for me (and for DW.).

By the way, California Insurance is certain to explode - just as it has in Hawaii following the Lahaina wild fires. Our HOA dues went up 40% this year - primarily to cover the increased insurance costs. Renting is looking better all the time.

 

[Out of Steam]

You could have 35 years ahead of you. What will that $1700 a month rent be in 20 years? Rents often go up faster and higher than regular inflation.

It does make sense to leverage your equity and this is a good plan but at your current age there are just too many variables, IMO. It's just too early...wait another 10 or 15 years.

Having watched the price of rent begin to get away from my mother before she died, I would hesitate to start renting a house or apartment in my 60s. At 75, which is about when I would like to give up on maintaining my own house, I'd be fairly comfortable with it.

 

[aja8888]

I would have to change the premise of this question. For many reasons, I'd never buy in California. 'Nuff said.

Having said that, the calculations are similar where I live (as illustrated in #83 above). The big difference between California and Hawaii is the Real Estate tax situation. Our RE taxes are the lowest in the nation (on a % of value basis).

Of course what I did in this "hypothetical" was to buy. If I were to do it now, I believe I would probably rent. Have I considered selling and renting. Yes. Will I? Probably not. Inertia of such a move would be almost insurmountable for me (and for DW.).

By the way, California Insurance is certain to explode - just as it has in Hawaii following the Lahaina wild fires. Our HOA dues went up 40% this year - primarily to cover the increased insurance costs. Renting is looking better all the time.

Everything is more expensive in California (most, anyway). Take electricity @$0.40/kWh versus $0.16 where I live.

I spent 10 years in Southern Ca and had to pay the state, city and federal income tax. It's an expensive place. And even though my property tax was shielded under Prop 13, I still had extra line items on my tax bill for city improvements that were funded from bond sales. No one ever talks about that kind of "tax" when they boast about Prop 13 (bond repayments).

 

[Koolau]

Having watched the price of rent begin to get away from my mother before she died, I would hesitate to start renting a house or apartment in my 60s. At 75, which is about when I would like to give up on maintaining my own house, I'd be fairly comfortable with it.

Keep in mind that to a certain extent, the same factors that drive rents up also drive up the costs of ownership. I mentioned insurance earlier. Insurance has exploded in several venues (FL due to hurricanes, Hawaii due to wild fires and soon California due to wild fires.)

Our costs (as owners) have definitely gone up dramatically. They will get even worse due to insurance within a year or two. (A separate issue has developed in which the insurance companies are insisting that all condo buildings retrofit with sprinkler systems - or else!) That will drive rents higher BUT no owner can make up all those increasing costs by raising rents. It's just not ever been possible to recoup all new costs with rent increases - bad as those increases seem.

I say all this to suggest that owning is no guarantee that costs won't increase - perhaps even faster than rents! YMMV

 

[Koolau]

Everything is more expensive in California (most, anyway). Take electricity @$0.40/kWh versus $0.16 where I live.

I spent 10 years in Southern Ca and had to pay the state, city and federal income tax. It's an expensive place. And even though my property tax was shielded under Prop 13, I still had extra line items on my tax bill for city improvements that were funded from bond sales. No one ever talks about that kind of "tax" when they boast about Prop 13 (bond repayments).

Yeah, the "Paradise" tax has gone up in most of the places people really want to live (FL, CA, HI etc.). Some are direct taxes and others are just because of the issues within those states. It's expensive to live where everyone wants to live (location, location, location).

 

[Diogenes]

I say all this to suggest that owning is no guarantee that costs won't increase - perhaps even faster than rents! YMMV

This is absolutely true, and brings us to an important point that's often ignored in these buy-vs-rent discussions. Ownership is a capital gains play. Insurance may be high, property tax may be rising, maintenance may be costly (especially as we age and do less DIY). But if local housing prices are rising faster than the S&P 500, those perturbing and annoying running-costs suddenly don't matter as much. Inversely, if we're in a low-tax state where the insurance market is highly forgiving, then maybe our running-costs are pleasantly low, but if housing prices remain suppressed, the gains of ownership are muted (or even negative).

Housing, like any other major purchase, needs to be viewed as an investment. That it happens to be the place where one lives, is all fine and dandy, but how would it fare as an investment? If the investment-case is poor, we seriously ought to consider renting; and if not, not.

 

[Out of Steam]

Inversely, if we're in a low-tax state where the insurance market is highly forgiving, then maybe our running-costs are pleasantly low, but if housing prices remain suppressed, the gains of ownership are muted (or even negative).

Housing, like any other major purchase, needs to be viewed as an investment. That it happens to be the place where one lives, is all fine and dandy, but how would it fare as an investment? If the investment-case is poor, we seriously ought to consider renting; and if not, not.

The houses my wife and I have owned over the past 30 years have provided us with shelter at reasonable cost, but none could be considered an investment competitive with our retirement accounts. The house we owned longest did slightly better than keeping up with inflation.

Ironically, given my skepticism about the neighborhood, our current house has appreciated at a faster rate than any of the others.

 

[Fermion]

Housing, like any other major purchase, needs to be viewed as an investment. That it happens to be the place where one lives, is all fine and dandy, but how would it fare as an investment? If the investment-case is poor, we seriously ought to consider renting; and if not, not.

And yet so few include house in their net worth.

 

[Sunset]

In the same boat. Renting in Paris for 2,200E in an apartment worth 1 mill plus. Rent cant go up, almost every appliance has been replaced by landlord as they break and a water line leak that flooded the downstairs neighbor, was handled 100% by them. These 100s of year old buildings need alot of upkeep none of what we pay. Plus the French tax upon death of the surviving spouse close to 40% of your worldwide assets. The only way they can collect from our kids is to seize French assets, so an owned home is a no go. Can't get a mortgage after age 60 and not taking the tax hit in the US either of liquidizing assets.

Doesn't Paris have rent controls, so long and strong that people follow old folks and make a deal to move in during the last days, so the landlord is stuck continuing the cheap rent to the "new" occupants ?

 

[imjustawarrior]

Housing, like any other major purchase, needs to be viewed as an investment. That it happens to be the place where one lives, is all fine and dandy, but how would it fare as an investment? If the investment-case is poor, we seriously ought to consider renting; and if not, not.

In general, I don't think a house is an investment if one is living in it as a primary residence. It does not pay interest like a bond or a dividend like a stock. It does not produce anything. I view it more like an item that generally keeps up with inflation.

 

[Koolau]

In general, I don't think a house is an investment if one is living in it as a primary residence. It does not pay interest like a bond or a dividend like a stock. It does not produce anything. I view it more like an item that generally keeps up with inflation.

It also needs constant maintenance which is not always easy to account for in the basis.

 

[Alex The Great]

Suppose that somebody moves to big-city California right now... San Diego, LA, SF/bay area. Suppose that a person has enough cash to buy, say $1.3M, but is considering renting and investing the cash in stock/bond indices. What would the property tax be? Insurance? Other costs of ownership? What should a person do? What would you do, putting yourself in this hypothetical situation?

I'd say moving to California for retirement does not make any financial sense anyway, does not matter buying or renting. Though it probably make sense in terms of weather, health care (depend on location), etc.

 

[FLSUnFIRE]

In general, I don't think a house is an investment if one is living in it as a primary residence. It does not pay interest like a bond or a dividend like a stock. It does not produce anything. I view it more like an item that generally keeps up with inflation.

I does produce something... a place to live (imputed rent). Certainly a place to reside is an expense which one can meet by renting and investing the principal or purchasing with the principal. I just did a back of envelope and my imputed rent is a 6.9% return on my purchase price* (net of ownership costs and equal to the lowest rent** in my community) which is tax-free, low-risk, and inflation adjusted as I don't have to pay more when rents/property values rise (homestead in FL so no huge property tax spikes). Of course, there could be a gain on the market value as well that would boost the overall return if I sell.

*Using my purchase price; at current market valuations (assuming making the decision today, the imputed rent would be 5.6%).
**Using the highest rent in my community (a furnished unit more updated but 25% smaller) would imply an imputed return of 9.6% on the current market value.

All that said, I don't personally consider my home value as part of my portfolio... sort of an off-balance sheet hedge/safety net. SHTF I can sell and move to a LCOL situation or use it to fund a few years of LTC.

 

[Donk2001]

Doesn't Paris have rent controls, so long and strong that people follow old folks and make a deal to move in during the last days, so the landlord is stuck continuing the cheap rent to the "new" occupants ?

Havent heard of that. Perhaps you are thinking of the contracts that people make with older folks. They buy their apartment, but the old folks get to stay at no rent until they die. Its a way to buy a desired apartment at todays price for the future. They do have rent controls of a sort though. Can't raise rent as its tied to real estate prices of a particular area and real estate prices have been flat or declining as of late.

 

[imjustawarrior]

I does produce something

With a normal definition of produce, I disagree.

There may be a benefit to a house, but it does not produce anything.