Author Topic: Rent or Buy?  (Read 11818 times)

wetstash

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Rent or Buy?
« on: February 24, 2012, 12:31:58 PM »
Hello gang,

Shout out to MMM for putting this intelligent group of people together.

I am a few years out of school and avidly saving around $1500/mo.  I have currently been socking money away in a company 401k / individual investment account (PRPFX mainly because I am weary of inflation).

I am currently spending about $900/mo on rent and was wondering if I would be better served by buying a condo.

Part of me thinks I am missing out on a good buying opportunity (~3% interest rates) and the other part of me wants to avoid insurance, taxes, home owners association fees etc.

I would love some feedback or ideas from anyone in a similar situation.

Thanks! -WS


velocistar237

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Re: Rent or Buy?
« Reply #1 on: February 24, 2012, 12:36:26 PM »
I was a die-hard renter. Then I started poking around and figured out it was financially better for us to buy, if we could find the right place. For me, it's a toss-up on the personal preferences. It didn't hurt that this was during the first-time home-buyer tax credit.

It's a case-by-case thing, not cut-and-dried. Here are two good resources for dissecting the decision:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
http://www.mtgprofessor.com/A%20-%20Purchasing%20a%20House/rent_or_buy_a_simpler_approach.html

Mike Key

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Re: Rent or Buy?
« Reply #2 on: February 24, 2012, 12:44:42 PM »
More details please, do you have any debts, what are your monthly expenses? What's your current income? Why a Condo?

wetstash

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Re: Rent or Buy?
« Reply #3 on: February 24, 2012, 12:54:37 PM »
You guys are quick.

Income 60k or 3300/mo after tax etc.  No debt.  I spend about 1,800/mo including rent, food, utilities, transportation, entertainment, etc. and save 1500/mo.

I live in Chicago and don't have a car.  I can take public trans to work for $86/mo.  Most properties for sale are high rise units or condos that have a hoa fee and most walk ups are out of my budget ie 500k multi unit buildings.

Hope that helps.

Matt K

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Re: Rent or Buy?
« Reply #4 on: February 24, 2012, 01:26:51 PM »
Part of me thinks I am missing out on a good buying opportunity (~3% interest rates) and the other part of me wants to avoid insurance, taxes, home owners association fees etc.

I think there are a lot of situations where renting makes sense. Exceedingly expensive towns (Vancouver for example) or short term stay (only gonna stay in town for a few years? there are a lot of fees you won't recover when selling a house), are two examples.

But, avoiding insurance, taxes, and other fees aren't good reasons. Why? Because even though you aren't paying them directly, SOMEONE is paying them, and that means you pare paying them in your rent as well as paying someone to handle them for you.

When I was renting one of the things I did was build a spread sheet that looked at how much I was paying for rent, how much I'd be paying to own a home (all costs), expected returns from my investments, expected increase in value of house, etc. If was a very thorogh spread sheet. Only after I built my own did I find out that a simple google search for "Rent vs own calculator" would give me similar results ;)

What I found was that when I looked at the house prices I was considering, my income & spending, and my current and historic investment returns my magic number was seven years.

Basically, if I rented for $1000/month and a house would cost $2000 a month (afte rall my utilities, taxes, fees, etc) and I invested that $1000 difference while renting so long as I lived in that space for less than seven years I'd have done better than owning. Once I'd been in a house for seven years the equity in the house (including costs of selling the house) would surpass what even optimistic investments would return.

This will be different for every person, but what amazed me was what the difference in net worth was the longer I stayed in one house. Especially you invest your mortgage payments after the mortage is done (instead of spending that money on other stuff).

I highly recommend playing with some rent vs own calculators, and if you are handy with a spread sheet making your own. Every calculation you could want exists on the net, you just need to google them - and almost all of them are already built into Excel and LibreOffice Calc (Excel's free and awesome cousin).


tannybrown

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Re: Rent or Buy?
« Reply #5 on: February 24, 2012, 01:38:35 PM »
It's hard to beat renting from a purely financial perspective. 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

Chemistay

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Re: Rent or Buy?
« Reply #6 on: February 24, 2012, 01:41:04 PM »
Not sure if he participates in this forum but one of the regular commenters on MMM posted an article about this today on his own blog:
http://jlcollinsnh.wordpress.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

arebelspy

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Re: Rent or Buy?
« Reply #7 on: February 24, 2012, 02:35:23 PM »
It's hard to beat renting from a purely financial perspective. 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

That's ridiculous.

Here's the obvious counter:  If it were true that always renting is better, no one would own.  There would be no landlords, cause it wouldn't pay to own property.  (And then, because of how an efficient, or semi-efficient, market works, prices would drop and then it WOULD make sense to own, rather than rent).

The people who argue that it doesn't make sense to own most often use the argument "well you have to pay insurance and taxes and repairs and you don't have to pay ANY of that when you're a tenant," but that's flat out wrong.  You do pay that, all of it.  It's just rolled into your rent, so you don't see it.
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smedleyb

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Re: Rent or Buy?
« Reply #8 on: February 24, 2012, 03:08:51 PM »
Hello gang,

Shout out to MMM for putting this intelligent group of people together.

I am a few years out of school and avidly saving around $1500/mo.  I have currently been socking money away in a company 401k / individual investment account (PRPFX mainly because I am weary of inflation).

I am currently spending about $900/mo on rent and was wondering if I would be better served by buying a condo.

Part of me thinks I am missing out on a good buying opportunity (~3% interest rates) and the other part of me wants to avoid insurance, taxes, home owners association fees etc.

I would love some feedback or ideas from anyone in a similar situation.

Thanks! -WS


Don't buy a condo.  Please.  Here's why:

1) Your banking nearly 20K a year.  That's awesome.  I love liquid investments!

2) Your young.  You might -- change that -- you will find another, better paying job.  Don't let a house/condo prevent you from moving to where the job opportunity is.  Getting in an out of a condo real fast will cost you nearly 15% of the total purchasing price.

3) Sure, money is cheap today, but when rates rise -- and they will -- what do you think that does to the underlying asset?  It caps/deflates the price. 

4) Condos are cool, single family homes are better and easier to sell -- usually.


That said, if you find a good deal on a unit and are willing to get yourself a couple (but at least one) rent paying roommates, then it's a whole other ball game.  Even better, buy a duplex and get roommates to live with you on your side!  Next thing you know, you go from paying $900 a month to pocketing $300-$400 a month, almost doubling your savings rate.

At least that's how I did it, although my roomate was my uncle and I let him live free!

velocistar237

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Re: Rent or Buy?
« Reply #9 on: February 25, 2012, 12:34:55 PM »
http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

I think the confounding factor is that this guy deals with rich people, and he probably selected high-end properties. One thing is for certain -- it's easy to find bad real estate deals.

In certain markets, it's not that hard to find decent deals, especially if you have a real estate license and some contractor know-how.

In our case, if we stay in our property for five years, then sell, it would be equivalent to a $200/month reduction in rent over that term, all things considered.

tannybrown

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Re: Rent or Buy?
« Reply #10 on: February 25, 2012, 02:04:51 PM »
It's hard to beat renting from a purely financial perspective. 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

That's ridiculous.

Here's the obvious counter:  If it were true that always renting is better, no one would own.  There would be no landlords, cause it wouldn't pay to own property.  (And then, because of how an efficient, or semi-efficient, market works, prices would drop and then it WOULD make sense to own, rather than rent).

The people who argue that it doesn't make sense to own most often use the argument "well you have to pay insurance and taxes and repairs and you don't have to pay ANY of that when you're a tenant," but that's flat out wrong.  You do pay that, all of it.  It's just rolled into your rent, so you don't see it.

Fair enough.  Let's also address the costs that often don't get addressed in the pro-owning argument: interest, opportunity costs for the money invested in a down payment (as well as those of typically higher mortgage payments as compared to rent payments), etc. 

The assumption that repair costs are rolled into rent isn't convincing to me.  Should my landlord's roof start leaking and he has to incur a $5000 repair, it only affects me if I let it in a negotiation.  Now, might a landlord be baking the costs of a previous repair (or an anticipated future repair) into the rent?  Of course.  But I don't buy the argument that landlords are always passing 100% of costs to their tenants -- a lot of that risk ends up being shared.

A lot depends on the city we're talking about, whether the owner is planning on doing something untypical with the home (renting out a room or the entire house), etc.  Even in the cases of renting out a home, I think a previous MMM entry illustrated the fallacies a lot of home buyers make in their assumptions.  Our own CBA showed renting to be the right financial move but we still chose to buy in 2010, because money isn't always the driving factor.  I think the professor's claim is overstated, but he's just stating the results of his 250 home survey.  As a rule, I think renters have the ability to come out ahead.  Expenses are regular, exposure to risk is minimal, and in a lot of cases, costs are lower.
« Last Edit: February 25, 2012, 02:10:28 PM by tannybrown »

arebelspy

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Re: Rent or Buy?
« Reply #11 on: February 25, 2012, 02:14:22 PM »
The assumption that repair costs are rolled into rent isn't convincing to me.  Should my landlord's roof start leaking and he has to incur a $5000 repair, it only affects me if I let it in a negotiation.  Now, might a landlord be baking the costs of a previous repair (or an anticipated future repair) into the rent?  Of course.  But I don't buy the argument that landlords are always passing 100% of costs to their tenants -- a lot of that risk ends up being shared.


Yes, of course you're paying for that.  Repairs and capital expenditures are built into the rent.

Again, if it wasn't, owning property would always be a money losing proposition, and then why would anyone do it?  Are you claiming no landlords ever make money, even given a leaky roof, property taxes, etc?  Of course you wouldn't say that. So who is paying those costs?  The tenant.  (And all taxpayers, through the deductions allowed by the government.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

tannybrown

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Re: Rent or Buy?
« Reply #12 on: February 25, 2012, 02:25:17 PM »
The assumption that repair costs are rolled into rent isn't convincing to me.  Should my landlord's roof start leaking and he has to incur a $5000 repair, it only affects me if I let it in a negotiation.  Now, might a landlord be baking the costs of a previous repair (or an anticipated future repair) into the rent?  Of course.  But I don't buy the argument that landlords are always passing 100% of costs to their tenants -- a lot of that risk ends up being shared.


Yes, of course you're paying for that.  Repairs and capital expenditures are built into the rent.

Again, if it wasn't, owning property would always be a money losing proposition, and then why would anyone do it?  Are you claiming no landlords ever make money, even given a leaky roof, property taxes, etc?  Of course you wouldn't say that. So who is paying those costs?  The tenant.  (And all taxpayers, through the deductions allowed by the government.)

Eh.  I remain unconvinced.  It rings like the arguments that costs of regulation are universally passed on the consumer, when the reality is that competition in the marketplace influences some business owners to share some of that cost and pass only a portion to the consumer.

It's not as cut and dried as you're portraying it.

And of course I'm not claiming that no landlords ever make money, or that renting is always better than buying.  That's a strawman you're setting up.
« Last Edit: February 25, 2012, 02:38:42 PM by tannybrown »

arebelspy

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Re: Rent or Buy?
« Reply #13 on: February 25, 2012, 02:33:55 PM »

And of course I'm not claiming that no landlords ever make money, or that renting is always better than buying.  That's a strawman you're setting up.

I'm not the one setting up the straw man! 

Go back and read how we got into this discussion.  Here:
Quote
It's hard to beat renting from a purely financial perspective. 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

(Emphasis mine.)

Now will you admit that I didn't set up any straw man, but merely refuted that nonsense spouted by that guy?

I think it's pretty easy to see that if renting was always better than buying, there'd be no such thing as a landlord, and all housing would have to be provided by the government, or something like that.  Clearly it sometimes pays for someone to own the property, and if so, it's not always going to be better to rent.

It is as cut and dried as I'm trying to portray it, because I'm not arguing that it's always better to buy (it's not), or even that it's better most of the time.  Just that sometimes it makes sense to buy.  But the fact of the matter is the article that I was addressing claimed it never made sense to buy, so my argument is that this assertion is wrong.  If it ever (even once) made financial sense to buy, then I'm right.  That, to me, is pretty cut and dry, cause clearly there's cases where it makes more sense to buy.

I'm not attacking anything you said, just that stupid article, but you seem to be taking it personally and quick to claim that I'm setting up a straw man.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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tannybrown

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Re: Rent or Buy?
« Reply #14 on: February 25, 2012, 02:37:17 PM »

And of course I'm not claiming that no landlords ever make money, or that renting is always better than buying.  That's a strawman you're setting up.

I'm not the one setting up the straw man! 

Go back and read how we got into this discussion.  Here:
Quote
It's hard to beat renting from a purely financial perspective. 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

(Emphasis mine.)

Now will you admit that I didn't set up any straw man, but merely refuted that nonsense spouted by that guy?

I think it's pretty easy to see that if renting was always better than buying, there'd be no such thing as a landlord, and all housing would have to be provided by the government, or something like that.  Clearly it sometimes pays for someone to own the property, and if so, it's not always going to be better to rent.

It is as cut and dried as I'm trying to portray it, because I'm not arguing that it's always better to buy (it's not), or even that it's better most of the time.  Just that sometimes it makes sense to buy.  But the fact of the matter is the article that I was addressing claimed it never made sense to buy, so my argument is that this assertion is wrong.  If it ever (even once) made financial sense to buy, then I'm right.  That, to me, is pretty cut and dry, cause clearly there's cases where it makes more sense to buy.

I'm not attacking anything you said, just that stupid article, but you seem to be taking it personally and quick to claim that I'm setting up a straw man.

You misunderstand the quote.  He's talking about his data (i.e. - a  250 home study).  Go back and read the article. :)
« Last Edit: February 25, 2012, 04:10:40 PM by tannybrown »

velocistar237

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Re: Rent or Buy?
« Reply #15 on: February 25, 2012, 05:48:01 PM »
wetstash,

If you can't tell, this can be a touchy topic. :)

Run the numbers for yourself using those calculators. Fiddle with the numbers so your calculation is conservative. For example, try putting in a high rate of return on investments to account for the opportunity cost. In my case, I came out ahead from a purely financial perspective, and I'm in an expensive market. But I'm a little older than you, and I have a family, so I plan on staying here for several years. If there's a chance you'll move, don't buy, period. Buying is long-term because of transaction costs. And whatever you do, don't put less than 20% down.

Danielle

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Re: Rent or Buy?
« Reply #16 on: February 27, 2012, 08:22:29 AM »
Hey wetstash, my profile is very similar to yours (my numbers are even almost exact) and I've been pondering the same issue.  I've never had any major problems with renting, but it would be nice to have some earth to garden and a garage for my car (such luxury!).  I tried to compare cost per square foot based on my own apartment (although who knows if this is even a ballpark measure).

Piggybacking on the discussion, I'm wondering if buying is still a good idea if I'd only live in the house for ~6-7 years (to the break-even point).  I do expect the value to increase or at least stay the same (Austin is growing steadily), but part of me just wants to make sure I'm not getting ahead of myself (counting eggs and whatnot).  Is it just a matter of risk?  Or do you think it would be a decent move?  I do have about a year to save and consider my situation.

arebelspy

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Re: Rent or Buy?
« Reply #17 on: February 27, 2012, 09:17:40 AM »
Piggybacking on the discussion, I'm wondering if buying is still a good idea if I'd only live in the house for ~6-7 years (to the break-even point).  I do expect the value to increase or at least stay the same (Austin is growing steadily), but part of me just wants to make sure I'm not getting ahead of myself (counting eggs and whatnot).  Is it just a matter of risk?  Or do you think it would be a decent move?  I do have about a year to save and consider my situation.

Have you run it through some rent vs. buy calculators?

Example: http://www.nytimes.com/interactive/business/buy-rent-calculator.html
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Matt K

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Re: Rent or Buy?
« Reply #18 on: February 27, 2012, 09:28:21 AM »
Piggybacking on the discussion, I'm wondering if buying is still a good idea if I'd only live in the house for ~6-7 years (to the break-even point).  I do expect the value to increase or at least stay the same (Austin is growing steadily), but part of me just wants to make sure I'm not getting ahead of myself (counting eggs and whatnot).  Is it just a matter of risk?  Or do you think it would be a decent move?  I do have about a year to save and consider my situation.

That depends on two big criteria: How are you defining break even, and how much do you value "ownership"?

If you define break even as being able to sell your house so you are in the same financial position as as if you'd simply been renting (for me, that was projected at about 3-4 years, but housing prices have continued to rise in my area, never having slumped from the recession). Then renting makes more sense, because you're aren't looking at the returns you'd have gotten by investing the difference.

If your break even point includes the investments and gains you would make with the cost difference while renting (for me 7 years), then by definition you are no worse off financially either way. Each choice represents a different risk. With renting you are expecting that rent won't increase much and your investments will return gains. With buying you are expecting housing prices to raise (or at least not fall), or the stock market will perform poorly. Which you chose is based entirely on your own sense of risk, and expecations for your area, and the future of the stock and bond markets.

The second thing to think about heavily is the "sense of ownership". I liked the laid-back don't worry approach to high rise renting (everything is taken care of by the supers). I would have happily kept renting for longer, except my better half really wanted her "own" place. And now that we do own our house, I have to admit, the "pride in ownership" is a real thing for me. I like painting the house and making it ours. I consider our house significantly better than it was whe the previous owners owned it, and I like that. I do work in the back yard, see the results of my labour and feel good. I've also learned a whole lot about 'handy man' type things since buying the house. Related to that, I now own a lot more tools than I did while renting.

If you don't feel pride like that then renting is, I think, the way to go. Renting gives you so much more flexibility. Want to move? Go ahead, do it, no worries! If you want to build something, and improve on it, don't rent (unless you work something out with your landlord, as one of our neighbours who really wanted tile & hardwood in their highrise appartment and were willing to do all the labour if the land lord ponied up most the material costs).

velocistar237

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Re: Rent or Buy?
« Reply #19 on: February 27, 2012, 09:53:58 AM »
Here's a pro-renting argument from Phil Greenspun that I hadn't heard before last week.

Quote
If you can rent anything decent, try to avoid buying property. Think about the most interesting people you know. Chances are, most of them are renters. People who rent talk about the books that they've read, the trips that they've taken, the skills that they are learning, the friends whose company they are enjoying. Property owners complain about the local politicians, the high rate of property tax, the difficulty of finding competent tradespeople, the high value of their own (very likely crummy) house or condo, and what kinds of furniture and kitchen appliances they are contemplating buying. Property owners are boring. The most boring parts of a property owner's personality are those which relate to his or her ownership of real estate.

I'm a property owner, so this is self-deprecating. I like my home, and I like making it better, but I'd like to make an effort on not spending too much life energy on it.

arebelspy

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Re: Rent or Buy?
« Reply #20 on: February 27, 2012, 10:50:15 AM »
Here's a pro-renting argument from Phil Greenspun that I hadn't heard before last week.

Quote
If you can rent anything decent, try to avoid buying property. Think about the most interesting people you know. Chances are, most of them are renters. People who rent talk about the books that they've read, the trips that they've taken, the skills that they are learning, the friends whose company they are enjoying. Property owners complain about the local politicians, the high rate of property tax, the difficulty of finding competent tradespeople, the high value of their own (very likely crummy) house or condo, and what kinds of furniture and kitchen appliances they are contemplating buying. Property owners are boring. The most boring parts of a property owner's personality are those which relate to his or her ownership of real estate.

I'm a property owner, so this is self-deprecating. I like my home, and I like making it better, but I'd like to make an effort on not spending too much life energy on it.

Hah, I like that.  It's mostly true, I think.

Although I'd be wary of any correlation/causation thing.  I.e. I think renters are younger, and tend to be the more "interesting" traveling, reading, etc.  I think homeowners tend to be older and thus a bit more "boring" in general.  There are conflating factors.

But I like that idea.  :D
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Matt K

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Re: Rent or Buy?
« Reply #21 on: February 27, 2012, 10:54:08 AM »
Here's a pro-renting argument from Phil Greenspun that I hadn't heard before last week.

Quote
If you can rent anything decent, try to avoid buying property. Think about the most interesting people you know. Chances are, most of them are renters. People who rent talk about the books that they've read, the trips that they've taken, the skills that they are learning, the friends whose company they are enjoying. Property owners complain about the local politicians, the high rate of property tax, the difficulty of finding competent tradespeople, the high value of their own (very likely crummy) house or condo, and what kinds of furniture and kitchen appliances they are contemplating buying. Property owners are boring. The most boring parts of a property owner's personality are those which relate to his or her ownership of real estate.

I'm a property owner, so this is self-deprecating. I like my home, and I like making it better, but I'd like to make an effort on not spending too much life energy on it.

I got a good chuckle out of that. I think the correlation is backwards though - owning a house doesn't make you boring, being boring makes you more likely to follow status quo and buy a 'nice' suburban home in a 'nice' neighbourhood and want to spend money to always have 'nice' furniture in it. Being boring, they have nothing more to talk about than their status quo consumption (and since the house is the biggest expense, it gets the most discussion).

I am now bothered by how much I've discussed home ownership on this forum. I was just reading this really cool book called...

Danielle

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Re: Rent or Buy?
« Reply #22 on: February 27, 2012, 11:02:21 AM »
arebelspy - I ran my numbers through that same calculator, and 6 years is my conservative estimate for a buying advantage.  The prices of houses in the area I'm looking at range from 150-200k, so that makes quite the difference (4 to 7 years).  They are all built in the late 70s-80s so I assume the difference mostly reflects the amount of work needed for an update.  Plus property tax is relatively high (I found that putting 2.0 was a fair estimate from trulia data).

Matt K - I hadn't really though about the stock market playing a role, but it totally does.  I guess I was counting more on the demand for homes increasing than how my 'stache would perform had I not put it towards a house.  I'm also nervous about rent going up, since it seems like we got in at a low (the rent actually went down about $50 a month from the time we considered the unit to the time we made the decision to go ahead with it).  I suppose this is where waiting will play an important role, so my boyfriend and I will have a better idea of how much we'll have saved up and how much rent will increase.

I'm totally up for some DIY action for renovation, but I'm worried about things beyond my scope (such as needing a new roof, electrical issues, etc).  My parents built their house new, so I expect more things to go wrong from an older house with an uncertain past (despite an inspection, I'd still be suspicious).  So as much as I'd feel proud about having a place I customized, I'm nervous about ending up with a place I messed up royally!!

velocistar - This is a good argument that rounds out my thoughts...my boyfriend and I both fear becoming that boring and I know he'd hate to get bogged down with house-related drama.  Then again, I'm itching to paint walls and keep a garden and make improvements after years of tolerating older rentals!


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I think I'll have to go through my lease again and see where I'd have leeway in upgrading my current apartment (I suspect my appliances aren't that much younger than I am).  That might satiate my desire to customize without taking the plunge into home ownership.  The complex is also under new management, so I'm hopeful that's a good thing.  Thanks for bringing up issues I hadn't thought about :)


Matt K

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Re: Rent or Buy?
« Reply #23 on: February 27, 2012, 11:32:41 AM »
I think I'll have to go through my lease again and see where I'd have leeway in upgrading my current apartment (I suspect my appliances aren't that much younger than I am).  That might satiate my desire to customize without taking the plunge into home ownership.  The complex is also under new management, so I'm hopeful that's a good thing.  Thanks for bringing up issues I hadn't thought about :)

A lot of my friends will paint the interior to their own tastes and do some cheap nicening up (maybe putting up baseboards crown moulding and shelving). Generally, (around here anyways, as always ymmv) the leases state that you can paint whatever colour you want, but when you leave you have to repaint the walls white/beige/land-lord-approved-colour. Furniture, paint, art, and different lights (easy enough to change and store the rental ones) make huge differences, can be done cheap, and either don't change the actual apartment or are easy to "return to stock" when you are ready to leave.

Some people are against the idea of upgrading a rental unit, because you are essentially giving your landlord something for free. I would argue against buying appliances unless you have some plan to bring them with you to your next rental unit. Otherwise they are an expensive gift to your landlord. You may wish to discuss your ancient applainces with your landlord and ask how long until they are slated to be replaced (any good property manager should have a time table for replacing appliances).

If you have a good working relationship with your landlord (as my neighbours did), you can negotiate them to pay for some (or all) of the materials if you put in the labour (and they agree with what you want to do). If you are able to get a good deal on a used set of appliances, you may wish to bring it up with the landlord and see what can be done. ("You look at them first and make sure they are up to your standards; I'll get them here and help the super remove the old ones and install these ones if you pay for them?")

Some landlords are game, others aren't.

Matt K

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Re: Rent or Buy?
« Reply #24 on: February 28, 2012, 06:16:30 AM »

arebelspy

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Re: Rent or Buy?
« Reply #25 on: February 28, 2012, 07:50:48 AM »
Hah!  Awesome mouseover on that one too.
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Danielle

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Re: Rent or Buy?
« Reply #26 on: February 28, 2012, 07:54:23 AM »
Thanks Matt K...hah, nice comic.  I'll probably see what's up today at the leasing office and feel out the situation.  You're right, it would be crazy to buy appliances and leave them (although part of me thinks I could get away with shoving the old fridge and stove in the abundant closet space we have, haha).  Although I am renting a washer and dryer for $35 a month...after a year or so this will be more expensive than buying them myself, so if the plan is to stay (and go apeshit painting everything!), I'd get my own then.  Err...just a washer, because dryers are anti-mustachian...(bad poker face)

tomsang

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Re: Rent or Buy?
« Reply #27 on: July 20, 2014, 08:57:26 AM »
Interesting flow chart regarding whether to buy or rent.

https://ca.finance.yahoo.com/news/flowchart-could-help-decide-whether-193200669.html


Mt9982

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Re: Rent or Buy?
« Reply #28 on: July 20, 2014, 09:27:35 AM »
The assumption that repair costs are rolled into rent isn't convincing to me.  Should my landlord's roof start leaking and he has to incur a $5000 repair, it only affects me if I let it in a negotiation.  Now, might a landlord be baking the costs of a previous repair (or an anticipated future repair) into the rent?  Of course.  But I don't buy the argument that landlords are always passing 100% of costs to their tenants -- a lot of that risk ends up being shared.


Yes, of course you're paying for that.  Repairs and capital expenditures are built into the rent.

Again, if it wasn't, owning property would always be a money losing proposition, and then why would anyone do it?  Are you claiming no landlords ever make money, even given a leaky roof, property taxes, etc?  Of course you wouldn't say that. So who is paying those costs?  The tenant.  (And all taxpayers, through the deductions allowed by the government.)

Yes, but being a real estate investor is very different than a young person that wants to buy a condo.  Unless, there is major appreciation most folks won't make money by holding onto a condo for a few years.  The realtor commission alone is a huge factor.  Yes, a lot of folks make money landlording BUT a lot of people don't.  My husband and I both own condos we will probably never make money off of.  I bought before the crisis when everyone though buying a home was the way to go. 

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Re: Rent or Buy?
« Reply #29 on: July 21, 2014, 07:22:07 AM »
Considering how very much anti-commute MMM is, I can't imagine anyone here recommending buying. Maybe that's because I work in a field where staying at a job for just 2.5 years is approximately average. It's very easy to change jobs and increase your commute by 10+ miles. Having a house is having an anchor. I own, and I rent out my extra bedrooms, and I'm now debating renting out the whole thing because I want to move closer to work. It has added a lot of stress to my life.

matchewed

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Re: Rent or Buy?
« Reply #30 on: July 21, 2014, 07:36:45 AM »
Because it isn't just about being pro or anti-commuting. You're trying to apply your particular circumstances to others (the field and job time frame), not everyone has those particular circumstances. It is a) a math question since there will be a mathematically superior option, and b) a lifestyle question that is a bit more squishy and involves things like length of job time, location, family, starting a family,...etc.

Buying works for some renting works for others.

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Re: Rent or Buy?
« Reply #31 on: July 21, 2014, 05:45:21 PM »
It's rarely rent or buy this very home.  In those very rare instances,  a simple formula determines which is the better move financially.   Often,  it's keep renting this place or buy that place.   No formula can explicitly spell out which is the winning move.  It really depends on you.  Where you want to live and how long you plan to live there.  If you see yourself staying put  decades past a break-even point,  it's a no brainer.  If you're still up in the air about where to live,  real estate is probably a lousy investment.
Over 55 years ago, my folks bought a home for $13, 000 or so with a mortgage payment that was $10 less per month than their apartment rental had been.  The fact that it increased in value 20 fold (actually more than that) is immaterial.   That they've owned the place outright for over 40 years has enabled a standard of living in their retirement that just would not be possible had they invested the difference and used the proceeds to pay their rent today.   The taxes, insurance and maintenance are a fraction of comparable rents.  I bought in my early 20s, paid off in early 40s.  It matters not at all to me that the value may have doubled since I bought it.  I can live here forever for a fraction of the price of renting.   I'd be hard pressed to rent a room with kitchen privileges for the ongoing costs of maintaining my home (including taxes).  Instead,  I've got two spare bedrooms to rent to college students that pay my overhead plus buy food. 
No one knows what the market will be like in the future.   You can make any predictions and find evidence to support your view.  But one of two things absolutely will happen:  you will get old or you will die young.   And older is way better with low fixed expenses.   

arebelspy

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Re: Rent or Buy?
« Reply #32 on: August 05, 2014, 10:22:17 PM »
The assumption that repair costs are rolled into rent isn't convincing to me.  Should my landlord's roof start leaking and he has to incur a $5000 repair, it only affects me if I let it in a negotiation.  Now, might a landlord be baking the costs of a previous repair (or an anticipated future repair) into the rent?  Of course.  But I don't buy the argument that landlords are always passing 100% of costs to their tenants -- a lot of that risk ends up being shared.


Yes, of course you're paying for that.  Repairs and capital expenditures are built into the rent.

Again, if it wasn't, owning property would always be a money losing proposition, and then why would anyone do it?  Are you claiming no landlords ever make money, even given a leaky roof, property taxes, etc?  Of course you wouldn't say that. So who is paying those costs?  The tenant.  (And all taxpayers, through the deductions allowed by the government.)

Yes, but being a real estate investor is very different than a young person that wants to buy a condo.  Unless, there is major appreciation most folks won't make money by holding onto a condo for a few years.  The realtor commission alone is a huge factor.  Yes, a lot of folks make money landlording BUT a lot of people don't.  My husband and I both own condos we will probably never make money off of.  I bought before the crisis when everyone though buying a home was the way to go.

Sure, I'm not saying a landlord always makes money, or that sometimes people don't make bad real estate decisions.  But I'm saying if one of your pros of renting is "not paying for repairs," it's not a strong pro to me if your landlord is making money, cause then you are the one paying for the repairs, they're just handling it for you.
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arebelspy

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Re: Rent or Buy?
« Reply #33 on: August 05, 2014, 10:24:32 PM »
Interesting flow chart regarding whether to buy or rent.

https://ca.finance.yahoo.com/news/flowchart-could-help-decide-whether-193200669.html

Though obviously things like that can be overly simplistic, that was a decent way to picture all of the things you want to consider before buying.

The "are you saving for other goals" yes and no leading to the exact same thing (bottom left) annoyed me - if it makes a difference, they should lead to different things.  And if it doesn't, why the hell are you asking?  A minor thing though.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

MVal

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Re: Rent or Buy?
« Reply #34 on: October 27, 2016, 01:49:29 PM »
Interesting flow chart regarding whether to buy or rent.

https://ca.finance.yahoo.com/news/flowchart-could-help-decide-whether-193200669.html

Though obviously things like that can be overly simplistic, that was a decent way to picture all of the things you want to consider before buying.

The "are you saving for other goals" yes and no leading to the exact same thing (bottom left) annoyed me - if it makes a difference, they should lead to different things.  And if it doesn't, why the hell are you asking?  A minor thing though.  :)

That simple chart seemed to echo all the Mustachian sentiments on home buying and all signs seem to point to NO for me buying a house. Good confirmation of my plans to rent a house in a the near future.

MrSal

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Re: Rent or Buy?
« Reply #35 on: October 27, 2016, 02:30:10 PM »
It's hard to beat renting from a purely financial perspective. 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E1LG20120215

Thats ridiculous.

You pay it included in the rent.

If I were to rent my own place... an equivalent property would cost me 1200/1300 dollars per month.

My monthly costs with the property are 650 USD (mortgage+taxes+insurance). Add in utilities of about 100 USD per month for everything and we are talking a difference of 450-550.

Actually the difference is more, since in the 650 mortgage payment some of it is going towards Principal so it is essentially socking money away in a savings account, so I estimate the difference being 600-750 dollars differnce IN MY CASE.

MVal

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Re: Rent or Buy?
« Reply #36 on: October 28, 2016, 10:44:23 AM »
If you rent, you need to convince your landlord to actually make the repair.  Some landlords won't just do everything you complain about - my neighbor rents and their house has all kinds of problems that the landlord won't fix.  I own and if there is a problem, I fix it.

That's what I'm afraid of. Right now I rent and live with the woman who owns the house, so she immediately fixes any problems we have. If something comes up in a place I decide to rent on my own, I'm wondering if I will wind up electing to fix things myself if the landlord won't cooperate.