Buy or rent as part of job move

[TexasHusker]

Here are pretty typical deals in the Dallas suburbs. This underscores the whole issue with that real estate market in terms of buying real estate:

https://dallas.craigslist.org/ndf/apa/d/updated-beautiful-kitchen/6616005493.html

https://dallas.craigslist.org/ndf/apa/d/lease-it-love-it-buy-it/6600474515.html

These pretty upper-end houses for a couple $ grand a month. Either house would run you $350K +/- to buy and you might never make a dime on it.

When it comes to DFW, it's rent, rent, rent!

[james.hendrickson]

Okay - time to pipe up here.

In general, homeowners have higher levels of wealth than renters, the Bureau of the Census statistics are abundantly clear. Median net worth of owners is something like x100 that of renters (link).

I've given this some thought and I think owning a home actually CAUSES higher levels of wealth. Why? Three reasons.

1. Owners are favored under Federal tax law
2. Owners possess appreciating real assets
3. Owners can borrow against their equity

Renters have none of these advantages.

So, all things being equal, it seems to me to be far better to own than rent from a wealth building perspective.

[bjl584]

Okay - time to pipe up here.

In general, homeowners have higher levels of wealth than renters, the Bureau of the Census statistics are abundantly clear. Median net worth of owners is something like x100 that of renters (link).

I've given this some thought and I think owning a home actually CAUSES higher levels of wealth. Why? Three reasons.

1. Owners are favored under Federal tax law
2. Owners possess appreciating real assets
3. Owners can borrow against their equity

Renters have none of these advantages.

So, all things being equal, it seems to me to be far better to own than rent from a wealth building perspective.

I wonder though, is this true because a majority of the renters in these studies don't have the option to buy? They don't have the option to buy due to lower income, no savings, and/or bad credit. If you have those factors going on in your life, then you will have to rent, and you will consequently have a lower net worth than someone who has their finances in order enough to be able to purchase a home.

In other words, I'm not sure home ownership causes wealth. Being financially savvy leads to wealth. Buying a home is just an offshoot of sound financial habits and behavior.

corn18 is already financially savvy. He has the option to buy or rent. He isn't being forced to do either. His financial habits have lead him to this crossroads.

[james.hendrickson]

BJ - I'm 100% convinced owning a home CAUSES wealth.

The differential is just too big and too robust to be accounted for any other way. The census data using something called the Survey of Income and Program Participation (SIPP), its cross sectional, but its about as good as it gets for a cross sectional study.

Look at differential in the graphic below, owners have a median net worth of 199K, renters have a median net worth of just 2k. That means owners are 100 times richer than renters. Some individual differences are probably in play, but the size of the difference also suggests macroeconomic forces, like tax policy and market appreciation at work. So, reasoning from that, what would the tax and market forces be? Well, deductions and appreciation. Hence my thinking its causal.

[TexasHusker]

Because the standard deduction for a family is now around $24K, there are no real tax advantages for owning a home for most people.

In a typical market, buying RE is prudent, as it is a hedge against inflation and you are slowly paying off an asset that should go up in value over time.

But DFW isn't a typical market. You want to invest in areas/neighborhoods that can demonstrate a long track record of slow-but-steady appreciation, and DFW doesn't offer a lot of this. The culture in DFW for "Everyman" is "buy new", old (5 years or older) isn't worth much. That's a big problem when you go to reselling your house.

RE can be a builder of wealth, and it can be a destroyer of wealth. Choose wisely.

[disneysteve]

RE can be a builder of wealth, and it can be a destroyer of wealth. Choose wisely.

Exactly. It makes no sense for corn to buy a house that he intends to sell in 3 years, even if the company is covering closing costs, and especially if it is in a difficult RE market. He isn't likely to get enough appreciation in 3 years to make a difference. Plus, if the company will pay his rent for the first year, it tips the scale even more toward renting. No muss, no fuss. Get what you need for that short period of time and have no ties holding you down when it's time to move on.

[corn18]

I wish I hadn't bought 5 houses in my time with the military. While I made some on one, I broke even on a few and lost a big chunk on one, the transaction costs of buying and selling a house every 2-3 years destroyed any chance at getting ahead. I wish I had rented during those 20 years, even though I could afford to buy (well, to be honest, I couldn't afford to buy but you all know that story).

That being said, I want to own a house in retirement for the inflation hedge. And I probably won't pay it off right away, even though I have the cash. It is very powerful to see the inflation adjusted P&I over a 30 year period. A $2,000 P&I today is only $823 30 years from now (3% inflation). If I rent for 30 years, that $2000 rent today would be $4,855 30 years later. That's a huge difference.

Unless interests rates go through the roof, I plan to at least carry a 30 year mortgage into early retirement and run the numbers from there. Even though I could just pay cash for a house.

[rennigade]

The more I think about it...the more I think maybe corn should buy a house.

Is the package $100k or $150k?

Either way...If the company is going to pay that much for a home...I may actually buy. Even if the housing market sucks and you end up selling the house for $20k less than what you paid...if the company footed $150k right off the bat...you're still up $130k. After taxes for 3 years...deduct another $30k. You're still going to pocket the $100k.

Not sure how that works for execs...do you have to pay taxes on the $100k or $150k they give you?

Either way...would be a pretty easy way to make some money.

[disneysteve]

I wish I hadn't bought 5 houses in my time with the military.

I am always baffled when I hear military folks buying each time they get moved around the country. They know it's going to happen. They know they aren't staying for more than a couple of years. And they still buy. It makes no sense and probably costs them tens of thousands of dollars over the years.

[corn18]

The more I think about it...the more I think maybe corn should buy a house.

Is the package $100k or $150k?

Either way...If the company is going to pay that much for a home...I may actually buy. Even if the housing market sucks and you end up selling the house for $20k less than what you paid...if the company footed $150k right off the bat...you're still up $130k. After taxes for 3 years...deduct another $30k. You're still going to pocket the $100k.

Not sure how that works for execs...do you have to pay taxes on the $100k or $150k they give you?

Either way...would be a pretty easy way to make some money.

That would be super cool if they let me use the money for a downpayment. But alas, I can only use the money for transaction costs. I cannot use it for a downpayment. I might be able to get them to pay points, but not sure.

So, if I buy a house for $400k and sell it for less, that comes out of my pocket.

[~bs]

I am always baffled when I hear military folks buying each time they get moved around the country. They know it's going to happen. They know they aren't staying for more than a couple of years. And they still buy. It makes no sense and probably costs them tens of thousands of dollars over the years.

Unless the market appreciates a huge deal, the transaction costs of buying/selling will wipe out any profit.

An equivalent would be having a 401k in something slow growing, like bonds. But instead of letting it accumulate growth, every 3 years, you chop the value by 10% (commission on selling plus fees for buying).... then wondering why your 401k isn't growing at all.

[rennigade]

That would be super cool if they let me use the money for a downpayment. But alas, I can only use the money for transaction costs. I cannot use it for a downpayment. I might be able to get them to pay points, but not sure.

So, if I buy a house for $400k and sell it for less, that comes out of my pocket.

Thats a bust package then. My fil's college roomate/best friend was an evp for sysco...they straight up bought his house. Granted the house was only $250k. Im not too jealous though...you couldnt pay me enough to deal with the daily stress his life was for 10-15 years.

In your case...theres no incentive to buy imo. And judging by that package to move...theres not much incentive to move unless your salary is going way way up.

[disneysteve]

Unless the market appreciates a huge deal, the transaction costs of buying/selling will wipe out any profit.

Not only that, but the hassle of selling. You have to move when they say so. How many times are folks stuck with a home in the former location that they're still trying to sell after they are in their new place? If I was in that situation, I want to be able to pack up and leave and be done with it.

[corn18]

Thats a bust package then. My fil's college roomate/best friend was an evp for sysco...they straight up bought his house. Granted the house was only $250k. Im not too jealous though...you couldnt pay me enough to deal with the daily stress his life was for 10-15 years.

In your case...theres no incentive to buy imo. And judging by that package to move...theres not much incentive to move unless your salary is going way way up.

I am looking for a new job in the same company. Nothing in my current location, so I am moving somewhere. Over the next 3 years, I expect my total comp to be around $2M. I plan to save $1M of that. I can quit at that point as long as we don't inflate our lifestyle, which we have been very good about not doing.

[bjl584]

BJ - I'm 100% convinced owning a home CAUSES wealth.

The differential is just too big and too robust to be accounted for any other way. The census data using something called the Survey of Income and Program Participation (SIPP), its cross sectional, but its about as good as it gets for a cross sectional study.

Look at differential in the graphic below, owners have a median net worth of 199K, renters have a median net worth of just 2k. That means owners are 100 times richer than renters. Some individual differences are probably in play, but the size of the difference also suggests macroeconomic forces, like tax policy and market appreciation at work. So, reasoning from that, what would the tax and market forces be? Well, deductions and appreciation. Hence my thinking its causal.

I'm not totally convinced, but this could be an interesting topic of debate for a different thread or for an article.

Real estate can make or break you. A savvy investor can use real estate to build incredible wealth. A savvy homeowner can use their primary residence to hedge inflation and mitigate taxes. Someone who has no clue what they are doing can end up in bankruptcy due to buying a home when they shouldn't. See 2008.