Rent Versus Buying

[mariogreymist]

If I had rent-control, I wouldn't dream of buying either. The factors that make renting more attractive than owning are very restrictive. There is nothing to stop my landlord raising the rent 8-10% a year. I saw a 3% increase this year - and as long as it stays behind my wage growth it's great. It does not always work that way, and buying is the most certain way to protect oneself from fluctuations in the housing market. If you plan to live in a house and can afford the payments, the ups and downs don't touch you aside from property taxes. And believe it or not, when you rent, you're paying your landlord's property tax.

[LivingAlmostLarge]

OMG rent control would totally sway me. I know someone renting in Santa Monica CA for $200 beachfront property. It's well worth over $4-5k renting alone now. They are just waiting for my friend's grandma to die.

[loanstar]

often the difference between rent costs and a mortgage payment is a few hundred dollars, sometimes there's no difference. with a mortgage loan atleast you stand a chance of eventually owning or getting some of your money back, with rent, once its gone its gone.

[DebbieL]

When the average house is going for $600K and my rent is under $900/month you can bet there's more than a few hundred dollars difference there. People are getting in way over their heads, but they're too stupid to see that yet. The incomes here don't come close to matching the ridiculous run-up in prices. When the crash comes, there's going to be a lot of crying and I won't be one of them. If I lived in an area where house prices had not gone completely insane and out of touch with fundamentals then I would consider buying. Until then - life is good.

[rooskers]

Millionaire Mommy Next Do I certainly agree with you that I could do all those things I said above while renting. The problem is when we looked to rent a house they gave us all the options that we currently have in our house the rent went from 500 - 900 dollars for apartment to 1500 - 2200 dollars for the houses with the backyard in regular neighborhood and they were 3000+ in the nicer neighborhoods. Well including taxes and insurance my house payment is 1100 a month so my choices were to continue in a smaller apartment, buy house that will probably depreciate for couple of years or pay astronomic rent prices for nice house with backyard. See in my area as house prices went up and sales started to slow people figured well market will pick up soon so I will just rent it out for my total payments. All I am saying is that there is no one answer for whether it is better to buy or rent it all depends on everyones individual situation. Right now I would have to agree in most markets that are overblown it is a lot better to rent.

[LivingAlmostLarge]

When the average house is going for $600K and my rent is under $900/month you can bet there's more than a few hundred dollars difference there. People are getting in way over their heads, but they're too stupid to see that yet. The incomes here don't come close to matching the ridiculous run-up in prices. When the crash comes, there's going to be a lot of crying and I won't be one of them. If I lived in an area where house prices had not gone completely insane and out of touch with fundamentals then I would consider buying. Until then - life is good.

Debbie, you have to realize that where you live matters. Trust me I know someone on Alabama who bought a huge house for $225k. In the 10 years she owned her previous home they went from $100k to I think $145k. So renting did not make sense for her. Rents were easily as much as her house note. Her previous house note was $700 she told me. Also friends in Saint Louis bought a huge house for $300k. They were renting in CA a 2 bed condo for $2500. It was more than their mortgage.

You cannot keep saying "oh my rent is $900". Sure I paid $1400 to rent in my city for a studio. It matters where you live.

Plus what are you paying $900 for? A studio? How much is a studio? Is it really $600k where you live? I live in a very HCOLA, easily as much as your Victoria, and I have a canadian husband. So I know canadian taxes. We pay a ton in mortgage and taxes. You have to compare apples to apples. If your $900/month is a house that sells for $600k great. If it's a $600k home but you are renting a 1 bedroom apartment well then there's a disconnect.

We looked at buying in Vancouver and it was less than where we're living now. We could get a newer, bigger place than where we live. But sure $300k is a 1 bedroom. Here it's barely a studio. Rent here is expensive, our roomie was looking at paying 1200-1400 for the studio plus heat. A 3 bedroom townhouse here goes for $2500-3000 easily. And a house? Well forget about it. Unless you want to live far out.

[irmanator]

the reason i bought

my rent was 510 and i found a house that has the monthly pmt of 422, the pmt is lower now because tax discount lowered the escrow part of the pmt. when i got it for a bigger place and a yard of my own. keep in mind it is still small just not as small. that wasn't hard choice

[disneysteve]

FYI - I heard Suze Orman the other day explaining that you should estimate that owning a home will cost 40% more per month than the mortgage payment when you account for taxes, insurance and maintenance expenses. So a $1,000/month mortgage payment means actual ownership cost of about $1,400. Certainly, that will vary for person to person but it is a decent ballpark estimate.

[irmanator]

Steve I always appreciate your comments and you are right i have read a few of her books. However I needed more space at the apartment I was sleeping in the living room, so the kids could have bedrooms. Now we all have separate bedrooms. Technically according to the town standards this is officially a 1 bedroom. the attic space is finished and is my sons room. according to tax rules it doesnt count because the ceilings are angled like the roof and a normal person can only stand in the middle but my son is little enough it doesn't matter. I built a wall and dd #2 has a room in the corner of my used to be large living room. dd#1 has what used to be considered a dining room. I have the only official bedroom . I have a yard and don't need to listen to the neighbors nighttime "activities" so for me it was the perfect choice. My dad checked it out it is a fixer upper but it is livable and i fix what i can as i can . mostly cosmetic.

[disneysteve]

irmanator - I didn't mean to direct that last post at you. I was just throwing it out there for everyone.

[jodi]

When DH and I owned a house, our total payments (PITI) were $450/mo (3 BR, 1.5 baths, 1650 sf), compared to $540 for our previous apartment (2 BR, maybe 800 sf) in the same neighborhood. We only lived there 3 years and sold the house for about $5k more than we bought it for. In that time, we saved $90/mo. on housing, although we did spend more on utilities, so it probably evened out in monthly output. I can't see where renting would have put us any further ahead. We would not have been able to invest more if we had rented - we were paying roughly the same.

I think we can probably agree that in certain markets and circumstances, buying is better than renting. In other markets, renting is better than buying. Right?

[Gruntina]

I think we can probably agree that in certain markets and circumstances, buying is better than renting. In other markets, renting is better than buying. Right?

I agree with different markets, locattions, and the kind of house one wish to purchase but need to look more into the cost comparative beyond the 'rent payments vs. mortgage payments' since there is tons more that go along with mortgage payments than of rent payments.

In my area, rent is cheaper than the interest portion of my mortgage payments.

For me, its a choice on how I want to live my life when it comes to a home so I am not taking the financial aspect a priority as much as I could. After all a home is not an “investment” to me as it merely a purchase to meet my needs instead of the other way around.

[Scanner]

There is a compromise here, that I think can be had.

I know I have done a thread before on "Do you consider your home as part of your portfolio?" Most wrote they do not. . .but c'mon. . .are you really going to tell me that you don't count $400-500,000 as part of your wealth? Maybe some don't, who achieve 4.3 million dollars in liquid wealth. Sure, a house is chump change then. But I think the average retiree is having a significant part of their net worth wrapped up in their home.

I think owning a home with a plan to sell it (preferably during a bull market) to lease it back could make sense.

You look to an investor to buy it with an agreement woven into the sale that you lease it back to him/her.

You could then cash your equity out and deploy it into income producing investments.

You structure the lease so there is an option to renew every 2 years (so the investor can't just throw you out willy-nilly). You then can negotiate property upkeep (less rent payment if you take care of it - more if the investor does).

I have considered that an alternative to "reverse mortgaging" should I not accumulate what I feel is a sizable nest egg.

Take for example my house.

Let's say I am 65 and have only $500,000 in retirement savings. Let's say my house is currently worth about $500,000 to keep the #'s round. I sell it for 500K and deploy that into muni bonds @ 5% interest. I now get $25,000/year tax-free I might add, in addition to SSI, if it's still around. If I don't mind paying some taxes. . .I could raise the yield by putting some of that money into dividend paying utility stocks.

Without chewing up any principal, I have another $25,000/year tax-free income to live on (in today's dollars). Not too bad. Of course, things change if you chew the principal.

Many advistors are also recommending never to be 100% bonds in retirement, that 20-30% should be in stocks (I like utility).

I then pay out my investor $2500/month rent. and get out of paying property taxes.

Now, this is what I would do; the wife, that's another story.

Most women I can imagine wouldn't relish the idea of renting their homes to an investor as they got older. They want that feeling of security (which I do think is a bit of an illusion) of owning a home.

[Broken Arrow]

Most women I can imagine wouldn't relish the idea of renting their homes to an investor as they got older. They want that feeling of security (which I do think is a bit of an illusion) of owning a home.

Emphasis mine.

You can't imagine how much I agree with you there. My ex-wife just bought a new place, and she was already debt-burdened to begin with. In that case, I think it's insane.

Of course, if a person is capable of affording a house, then that would be a different story.

[Graham]

With the housing market in the dumps renting is beginning to look appealing to many. Although credit may be harder to come by nowadays, an undervalued housing market can result in a great long term investment.