Author Topic: The 2017 Cost of Renting vs. Owning a Home in Every State  (Read 3043 times)

Valhalla

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The 2017 Cost of Renting vs. Owning a Home in Every State
« on: August 09, 2017, 01:20:43 PM »
Recent article: https://www.gobankingrates.com/mortgage-rates/cost-renting-vs-owning-home-state-2017/

I'm not sure I agree with all of the analysis, but I could be wrong. For instance, Arizona:

Quote
Buying vs. Renting a Home in Arizona

Monthly rent in Arizona: $1,273
Monthly mortgage in Arizona: $1,326
Should you rent or buy: Rent
The median monthly mortgage has risen over the past year in Arizona, making it even more expensive to own than rent a home. In 2016, it was more expensive to rent by $27. This year, the difference is $53, nearly twice that amount.

This doesn't take into account that rent will continue to rise in the future, or the tax advantages of owning a home, or building home equity, or that you could own a much larger house than what you could rent for a similar property.

For instance, I have a friend who has rented for over 20 years, never bought a house.  We pay approximately the same housing costs (ok aside from the $10k+ AC units -ugh), a little over $1k per month.  He has a 1 bedroom studio apartment, with a car port spot.  I have a 4 bedroom house with a 3 car garage, and a decent sized backyard / front yard.

I also have to pay property tax, which is deducted from my federal tax.  I also have built up quite a bit of equity, plus my mortgage is tax deductible even though it's about the same cost as my friend's apartment rent.  Finally, should I decide to sell / cash out, all of the gains in the house would be completely tax free, since it's my primary residence.

My friend who has paid for 20 years of rent will have nothing to show for his expenditure, whereas I have a nice cash out option should I wish.

For me, I've come out way ahead being a home owner than having been a renter the last 20 years.

ketchup

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #1 on: August 09, 2017, 01:28:44 PM »
Also, if you're renting, you don't have to pay for a new roof, kitchen appliances, driveway, floors, HVAC system, garage door opener, or anything else over the years.  And you don't have equity tied up in an illiquid asset (huge opportunity cost).  That's worth much more than zero.  It's not a simple "mortgage vs. monthly rent" comparison.  Tax benefits of home ownership definitely don't make up the difference (would you spend a dollar to save ten cents?), plus unless you're a very high earner it's probably not much different than the standard deduction anyway.

I say all this as a homeowner.  Just make sure you are comparing all the numbers.

Valhalla

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #2 on: August 09, 2017, 01:47:38 PM »
Also, if you're renting, you don't have to pay for a new roof, kitchen appliances, driveway, floors, HVAC system, garage door opener, or anything else over the years.  And you don't have equity tied up in an illiquid asset (huge opportunity cost).  That's worth much more than zero.  It's not a simple "mortgage vs. monthly rent" comparison.  Tax benefits of home ownership definitely don't make up the difference (would you spend a dollar to save ten cents?), plus unless you're a very high earner it's probably not much different than the standard deduction anyway.

I say all this as a homeowner.  Just make sure you are comparing all the numbers.
that's true, but the cost of paying for a new roof, HVAC system, etc., has to come from somewhere, and typically the renter has to pay it one way or another, so it's not a completely escapable expense for a renter.  My friend who has been renting for 20 years has covered the costs one way or another.  While I may have greater out of pocket costs from time to time, it is heartening to know that it is recoverable.

For instance, if I decide tomorrow to just rent again, I could sell my house and get the equity which far outweighs the expense of owning the house.
« Last Edit: August 09, 2017, 01:49:52 PM by Valhalla »

ketchup

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #3 on: August 09, 2017, 01:51:31 PM »
Also, if you're renting, you don't have to pay for a new roof, kitchen appliances, driveway, floors, HVAC system, garage door opener, or anything else over the years.  And you don't have equity tied up in an illiquid asset (huge opportunity cost).  That's worth much more than zero.  It's not a simple "mortgage vs. monthly rent" comparison.  Tax benefits of home ownership definitely don't make up the difference (would you spend a dollar to save ten cents?), plus unless you're a very high earner it's probably not much different than the standard deduction anyway.

I say all this as a homeowner.  Just make sure you are comparing all the numbers.
that's true, but the cost of paying for a new roof, HVAC system, etc., has to come from somewhere, and typically the renter has to pay it one way or another, so it's not a completely escapable expense for a renter.
Right, but my point was that stuff is all wrapped into the monthly rent and a renter doesn't have to even think about it, whereas it's completely separate from a mortgage payment if you buy.  So renting is "better" if monthly rent is less than mortgage + taxes + insurance + upkeep + opportunity cost would be.

Roland of Gilead

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #4 on: August 09, 2017, 01:56:49 PM »
It amazes me that rent is cheaper than owning anywhere.

It really does seem like this points to a very overinflated housing market, which then reinforces the choice to rent rather than buy.

DarkandStormy

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #5 on: August 09, 2017, 01:56:59 PM »
None of rent goes to equity.  Part of a mortgage payment goes to equity.  Now, some might say that asset isn't as stable as it used to be as we saw in '07 and '08.  Still, if I have to pay $X regardless to live in a place, I'd rather pay $X+Y and be on my way to several hundreds of thousands of dollars in equity.
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aFrugalFather

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #6 on: August 09, 2017, 01:59:33 PM »
Not sure how useful this could be to anyone.  Maybe its just coming from someone in California, but whether something is cheaper or more expensive depends more on the particular house and neighborhood than on any state wide statistics.  $50 is neither here nor there, but choosing between two properties across the street from each other could be a $100,000 difference in cost and consequences. 

PizzaSteve

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #7 on: August 09, 2017, 02:29:19 PM »
A state is too large an area for real estate analysis.  By zip code would make more useful assessment.  I did that type of analysis when i had access to a real estate asset mgmt company database and MLS data.  I am sure it is out there on Redfin or Zillow, if you subscribe.
« Last Edit: August 11, 2017, 02:30:26 PM by PizzaSteve »
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GenXbiker

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #8 on: August 09, 2017, 06:19:30 PM »
If you own your home, you don't necessarily have a mortgage.  My home is paid for, and I've done calculations factoring in rent of a similar home vs. my home ownership expenses, including insurance cost differences, opportunity cost, property tax, home appreciation, investment income tax, and maintenance.  There's a range in these calculations, but my best estimate always comes out with ownership coming out to an average lower monthly cost in the long term by hundreds of dollars.  I would have to scale down signifcantly from my home to make renting pay off financially.
« Last Edit: August 09, 2017, 06:22:17 PM by GenXbiker »

undercover

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #9 on: August 09, 2017, 10:44:15 PM »
Whether you should rent or buy depends on how long you're going to own the home, and that's that. Comparing average monthly rents to average monthly mortgages statewide is a pretty pointless exercise.
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JLee

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #10 on: August 09, 2017, 10:54:19 PM »
Recent article: https://www.gobankingrates.com/mortgage-rates/cost-renting-vs-owning-home-state-2017/

I'm not sure I agree with all of the analysis, but I could be wrong. For instance, Arizona:

Quote
Buying vs. Renting a Home in Arizona

Monthly rent in Arizona: $1,273
Monthly mortgage in Arizona: $1,326
Should you rent or buy: Rent
The median monthly mortgage has risen over the past year in Arizona, making it even more expensive to own than rent a home. In 2016, it was more expensive to rent by $27. This year, the difference is $53, nearly twice that amount.

This doesn't take into account that rent will continue to rise in the future, or the tax advantages of owning a home, or building home equity, or that you could own a much larger house than what you could rent for a similar property.

For instance, I have a friend who has rented for over 20 years, never bought a house.  We pay approximately the same housing costs (ok aside from the $10k+ AC units -ugh), a little over $1k per month.  He has a 1 bedroom studio apartment, with a car port spot.  I have a 4 bedroom house with a 3 car garage, and a decent sized backyard / front yard.

I also have to pay property tax, which is deducted from my federal tax.  I also have built up quite a bit of equity, plus my mortgage is tax deductible even though it's about the same cost as my friend's apartment rent.  Finally, should I decide to sell / cash out, all of the gains in the house would be completely tax free, since it's my primary residence.

My friend who has paid for 20 years of rent will have nothing to show for his expenditure, whereas I have a nice cash out option should I wish.

For me, I've come out way ahead being a home owner than having been a renter the last 20 years.

There's also the matter of what time you got into the housing market.  If you bought in Phoenix in 2007, you were kinda screwed.  I bought my house in Phoenix in 2013, as the markets began to recover.  My house has gone up by nearly 50% since then.

Incidentally, in NJ, 18% of what I pay in rent is a tax deduction because it is assumed to go towards property tax.

chemistk

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #11 on: August 10, 2017, 06:09:10 AM »
Much of it has to do with aligning your lifestyle to your living situation - probably just as much as the $$$.

Do you want someone else to worry about maintenance, mortgage, etc.? Do you move frequently? Then Rent!

Do you want equity in the roof over your head? Are your kids happy where they are with school and friends? Do you want to stay somewhere for a long time? Then Buy!

The numbers do matter. Remember, MMM & co. rented in the early days of the blog...

Sometimes logic and reason aren't enough to convince you one way or another. We currently rent, and it's not terrible but I kid you not, the polarizing decision for me to fast track saving 20% for a house was when our garbage disposal broke and the landlord did not authorize a new one, so the plumber came in and just put a standard drain pipe. A $60 disposal! Who does that? So, I'm planning to buy in '18 or '19.

CptCool

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #12 on: August 10, 2017, 07:53:31 AM »
It's more than just numbers too. If you rent, you don't have to worry about anything, or spend your time fixing things. If you own, it might cause more stress when things break. I don't think I ever had to waste an entire weekend working on the home when I was renting, but that seems to happen quite frequently after owning a home

MrsPete

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #13 on: August 10, 2017, 08:56:43 AM »
This article is comparing as if you're still paying a mortgage.  That's the beauty of owning:  Renting goes on forever, whereas at some point you'll make a final mortgage payment.  We paid off our house over a decade ago, and our housing expenses are now something like 2K per year:  taxes and a bit of maintenance.  Renting will never compare to owning your home without a mortgage. 

Another important point:  A typical apartment just isn't as nice as a typical house.  When we go over to our daughter's apartment, we hear other people walking up the steps, flushing their toilets, etc.  We have to search for a parking place.  She doesn't have an attic for storage.  Her appliances are the cheapest of the cheap, which doesn't make cooking at home enjoyable, and they have a terrible time with roaches.  This is a NICE apartment complex too!  In all fairness, the apartment has a lovely layout, nice big bedroom closets, and a fairly private balcony.   

dcheesi

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #14 on: August 10, 2017, 09:04:33 AM »
A state is too large an area for real estate analysis.  By zip code would make more useful assessment.  I did that kknce when i had access to a real estate asset mgmt company database and MLS data.  I am sure it is out there on Redfin or Zillow, if you subscribe.
Or least by metropolitan area. Virginia is a good example of this; the real estate market in NoVa (DC 'burbs) is vastly different from RE markets in other parts of the state.

slugline

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #15 on: August 10, 2017, 09:09:12 AM »
A state is too large an area for real estate analysis.  By zip code would make more useful assessment.  I did that kknce when i had access to a real estate asset mgmt company database and MLS data.  I am sure it is out there on Redfin or Zillow, if you subscribe.

Agreed. By ZIP code would be more useful. At the very minimum, they should break it down by metros versus rural areas, because surely those aren't moving in lockstep?

Valhalla

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #16 on: August 10, 2017, 10:49:24 AM »
This article is comparing as if you're still paying a mortgage.  That's the beauty of owning:  Renting goes on forever, whereas at some point you'll make a final mortgage payment.  We paid off our house over a decade ago, and our housing expenses are now something like 2K per year:  taxes and a bit of maintenance.  Renting will never compare to owning your home without a mortgage. 

Another important point:  A typical apartment just isn't as nice as a typical house.  When we go over to our daughter's apartment, we hear other people walking up the steps, flushing their toilets, etc.  We have to search for a parking place.  She doesn't have an attic for storage.  Her appliances are the cheapest of the cheap, which doesn't make cooking at home enjoyable, and they have a terrible time with roaches.  This is a NICE apartment complex too!  In all fairness, the apartment has a lovely layout, nice big bedroom closets, and a fairly private balcony.   
Excellent points.  My mortgage will come to an end and I'll only have to worry about maintenance expenses.  That will be sweet!!   Renters on the other hand are subject to payment hikes and owners selling property under them, etc.

Valhalla

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #17 on: August 10, 2017, 10:50:59 AM »
Whether you should rent or buy depends on how long you're going to own the home, and that's that. Comparing average monthly rents to average monthly mortgages statewide is a pretty pointless exercise.
I disagree about this point.

My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.

He would have gotten a nice tax deduction for the monthly mortgage payments, and a nice chunk of  equity after 20 years.  Had he purchased 20 years ago, he could sell it now and get money (equity + tax free capital gain) back from selling it, and would be further ahead than simply renting for 20 years.
« Last Edit: August 10, 2017, 10:52:51 AM by Valhalla »

undercover

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #18 on: August 10, 2017, 12:49:55 PM »
Whether you should rent or buy depends on how long you're going to own the home, and that's that. Comparing average monthly rents to average monthly mortgages statewide is a pretty pointless exercise.
I disagree about this point.

My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.

He would have gotten a nice tax deduction for the monthly mortgage payments, and a nice chunk of  equity after 20 years.  Had he purchased 20 years ago, he could sell it now and get money (equity + tax free capital gain) back from selling it, and would be further ahead than simply renting for 20 years.

How are you disagreeing? I wasn't even referring to your anecdote. Clearly over twenty years one is better off buying. That's in alignment with what I said. If your friend was leaving after a year or two then it's likely he would be better off renting but of course 5+ years is a different story. There's plenty of rent vs buy calculators and the determining variable is always time.

My point is the article itself is useless as it's only looking at monthly payments. We are in agreement. It's not taking into account equity, inflation, property values, down payment, etc. It's also a junk comparison to compare median mortgage to median rent across an ENTIRE state. Most people who rent don't rent luxury homes.
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RobFIRE

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #19 on: August 11, 2017, 03:45:03 AM »
Certainly state-wide averages aren't much use as large city centre and non-holiday countryside will have big variations in rent versus buy costs.

I also think that headline rent versus mortgage figures are useful as a starting point but don't tell you the full picture: as the owner you (should expect to) get long-term appreciation in home value and (in the US) tax savings on mortgage payments as pluses, but as negatives have maintenance costs and property taxes. Clearly in the long term if rent and mortgage are the same, just considering those costs it's better to own as you build up equity. However, if you rent and invest the money that would have paid for maintenance and property taxes, will that be as much as or the same as the equity built up? Depends on your predictions for investment returns, maintenance costs as a proportion of property value, property value appreciation.

The other perspective I have on rent versus buy is when you are in the situation that you have the cash to buy outright, but choose to rent instead (what I'm doing at the moment). The rent on the place I rent at the moment is almost exactly 4% a year of what the place is worth, so using the 4% rule owning the place (so rent free), versus paying the rent and having the money invested are equivalent, if you think the place's value will only increase with inflation. If I did own it I would have management fees to pay (shared apartments) and maintenance, whereas while I'm renting I don't have those two (explicitly at least) so can be investing that money not spent. In the UK the person resident pays the council (property) taxes, so that's no difference for rent vs own. So in the situation of rent versus own where rent matches the investment return, I think in financial terms it is then a matter of your projections of property versus investment growth.

There are other parts of the UK where the rent is x2 and the purchase price x4, which would suggest to me that in financial terms you should rent there.

For me I would say buy when you have a medium term plan to live somewhere. The transaction costs of buying and selling are too high to want to buy and sell your home on a regular basis.

Of course non-financial considerations are different. Having a place that is yours and you are free to do what you like with and have certainty that no landlord can kick you out has value.

RedmondStash

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #20 on: August 11, 2017, 10:28:16 AM »
... the cost of paying for a new roof, HVAC system, etc., has to come from somewhere, and typically the renter has to pay it one way or another, so it's not a completely escapable expense for a renter.

This is an excellent point, and one I haven't seen elsewhere. People who rent out houses are running a business, and thus are probably turning a profit. That means all homeowners' expenses eventually get covered by rent and rental increases.

Now I feel better about owning our home.

It's more than just numbers too. If you rent, you don't have to worry about anything, or spend your time fixing things. If you own, it might cause more stress when things break. I don't think I ever had to waste an entire weekend working on the home when I was renting, but that seems to happen quite frequently after owning a home

I enjoy fixing and tinkering around the home. I've learned a lot about plumbing, minor electrical work, drywall, painting, etc. I have a much clearer sense of how the various systems work, and how to troubleshoot, repair, and replace things. It's been a great education, rewarding and fun -- at least after the project is successfully completed. Not so much along the way sometimes, what with all the cussin'. LOL!

And when I rented, I hated the feeling that a landlord could just boot me out of my home. I like the feeling of permanence of owning a home, even if it is partly illusion, as all permanence is.

jlcnuke

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #21 on: August 11, 2017, 10:42:40 AM »
Whether you should rent or buy depends on how long you're going to own the home, and that's that. Comparing average monthly rents to average monthly mortgages statewide is a pretty pointless exercise.
I disagree about this point.

My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.

He would have gotten a nice tax deduction for the monthly mortgage payments, and a nice chunk of  equity after 20 years.  Had he purchased 20 years ago, he could sell it now and get money (equity + tax free capital gain) back from selling it, and would be further ahead than simply renting for 20 years.

Assumptions -
Not planning/willing/able to be a landlord
Rent is approximately equal to PITI + maintenance

Year 1 - Buy $300,000 house, pay 3% in fees to buy the house ($9k).
Year 3 - Transferred to another area of the country for work. Sell house for $310k, pay 3% in fees to close on the house ($9,300) and end up with $2k in principle coming back to you, buy new $300k house in new area paying another 3% in fees to buy that house ($9k). Currently out ~$27.3k in fees with $10k in appreciation and $2k in appreciation. As such, you've paid the whole mortgage payment and spent an additional $15.3k to own instead of rent.
Repeat the above 5 times and the renter is up by well over $100k if they invest the money you paid in closing costs.

How long you're going to stay in a home matters a lot as long as buyers/sellers are willing to pay a percentage of their home cost just to buy or sell it. Approximately 7-10% is typical for total residential real estate transaction costs - meaning you have to get close to 10% in appreciation just to really have positive equity for a sale of a home, which means you need to be in a "hot market" or, for most people, stay there long enough for the transaction to be worth it.

Time matters a lot. If you move every 3 years and don't hold onto a property to rent, you'll likely never build up equity and may even lose net worth after fees relative to renting.

Dicey

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #22 on: August 11, 2017, 11:09:26 AM »
... the cost of paying for a new roof, HVAC system, etc., has to come from somewhere, and typically the renter has to pay it one way or another, so it's not a completely escapable expense for a renter.

This is an excellent point, and one I haven't seen elsewhere. People who rent out houses are running a business, and thus are probably turning a profit. That means all homeowners' expenses eventually get covered by rent and rental increases.

Now I feel better about owning our home.

It's more than just numbers too. If you rent, you don't have to worry about anything, or spend your time fixing things. If you own, it might cause more stress when things break. I don't think I ever had to waste an entire weekend working on the home when I was renting, but that seems to happen quite frequently after owning a home

I enjoy fixing and tinkering around the home. I've learned a lot about plumbing, minor electrical work, drywall, painting, etc. I have a much clearer sense of how the various systems work, and how to troubleshoot, repair, and replace things. It's been a great education, rewarding and fun -- at least after the project is successfully completed. Not so much along the way sometimes, what with all the cussin'. LOL!

And when I rented, I hated the feeling that a landlord could just boot me out of my home. I like the feeling of permanence of owning a home, even if it is partly illusion, as all permanence is.
Ahhh, love to see those light bulbs turning on!

Another problem with these Rent vs. Buy comparisons is they presume the renter is saving and investing the difference every month. We all know that mostly doesn't happen. Besides enforced monthly payments, a homeowner gets access to two powerful wealth-building tools: leverage and inflation protection. If you don't understand what that means, get to google-in'.
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dcamnc

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #23 on: August 11, 2017, 11:19:56 AM »
I'm in NC, which shows homeowning is more expensive on the map. I will say that it really depends on where you buy/rent. Rent around me (outskirts of the capital, Raleigh), is much higher than my mortgage was, about double. It's just very dependent.

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #24 on: August 11, 2017, 12:23:02 PM »
... the cost of paying for a new roof, HVAC system, etc., has to come from somewhere, and typically the renter has to pay it one way or another, so it's not a completely escapable expense for a renter.

This is an excellent point, and one I haven't seen elsewhere. People who rent out houses are running a business, and thus are probably turning a profit. That means all homeowners' expenses eventually get covered by rent and rental increases.

Now I feel better about owning our home.

It's more than just numbers too. If you rent, you don't have to worry about anything, or spend your time fixing things. If you own, it might cause more stress when things break. I don't think I ever had to waste an entire weekend working on the home when I was renting, but that seems to happen quite frequently after owning a home

I enjoy fixing and tinkering around the home. I've learned a lot about plumbing, minor electrical work, drywall, painting, etc. I have a much clearer sense of how the various systems work, and how to troubleshoot, repair, and replace things. It's been a great education, rewarding and fun -- at least after the project is successfully completed. Not so much along the way sometimes, what with all the cussin'. LOL!

And when I rented, I hated the feeling that a landlord could just boot me out of my home. I like the feeling of permanence of owning a home, even if it is partly illusion, as all permanence is.
Ahhh, love to see those light bulbs turning on!

Another problem with these Rent vs. Buy comparisons is they presume the renter is saving and investing the difference every month. We all know that mostly doesn't happen. Besides enforced monthly payments, a homeowner gets access to two powerful wealth-building tools: leverage and inflation protection. If you don't understand what that means, get to google-in'.

I don't see how that's a problem.  Not for Mustachians at least.
"Compound interest is the most powerful force in the universe."  -- Einstein

MrsPete

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #25 on: August 14, 2017, 12:35:11 PM »
My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.
Well, yeah, it's true that he has to live somewhere, but there's more to that thought:  If he moved every two years and paid all the fees associated with taking out a new mortgage, he would have been better off renting.  One of the reasons to rent is that it's easier to pick up and leave. 

Ichabod

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #26 on: August 14, 2017, 02:47:21 PM »
The "Landlords make a profit" logic is erroneous.

Plenty of businesses and plenty of landlords don't make money. Look at the real estate section on this forum, particularly threads where people are looking at target properties. Many REIs have a hard time finding properties where they can make money.

Landlords could also be making a profit, and you'd still be better off renting. Their costs and investment preferences could be different from yours. You might be avoiding transaction costs (commissions and other closing costs) that landlords don't have pay every-time a resident moves. Maybe they have access to better financing than you do. Maybe the house is paid off, and while it cash-flows for them they actually get a below market return on their money. Maybe their day-job is a general contractor, and they do all their own repair and maintenance with wholesale prices on the materials, or more likely, they have good relationships with contractors they already know and trust. Maybe they accept that their rental property is generating below-market returns, but they went real-estate exposure in their portfolio.

Owning a house can be a great financial decision. The government and the real estate lobbies have a hand on the scale that helps. But real estate doesn't always go up, and there are many places in this country where even if you lived in the same place for ten years, you would've been better off renting.

It's a local and individual decisions. If you're Tim "The Tool-Man" Taylor and plan to live in the same Midwestern house for the rest of your life, go ahead and buy. If you don't know a screwdriver from a hammer and plan to job-hop between coasts, you should probably rent.

GuitarStv

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #27 on: August 14, 2017, 02:55:05 PM »
Renting also involves the time and effort spent locating a suitable home and the expenses associated with moving all your stuff to it (these costs are often unforseeable to the renter).  When I was renting this seemed to happen every 3-4 years.  Nobody ever adds these into their calculations.

mcneally

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #28 on: August 14, 2017, 04:40:58 PM »
As a single person I prefer renting because 1) I don't want to hassle with maintenance and 2) if I were to get involved with someone to the point of living together, the hypothetical house that I bought might not be an ideal choice for us (e.g. a place centralized between our two jobs would be a better choice or she just strongly wants to have a place that's "ours" rather than *my* place that she lives in). I live in a duplex in a fairly nice neighborhood for $875. If I were to buy a SFH it would probably in the upper $100,000s. All things considered (transactions costs, appreciation of the house, expected maintenance costs, extra utilities since water/sewer/trash are included in rent, investing the savings when renting, etc), I think it would take about ~10 years to break even. Using the assumptions I do, if I bought and moved after 3 years, I estimate I'd come out $6,600 behind. Of course, this is not an apples to apples comparison, but as a single person I'd see very little value in the additional space of a house and I really like not have to worry about maintenance. (It would be nice never to hear my neighbor/ not worry about my own noise). So I'd prefer to rent forever if the numbers came out just slightly in favor of owning. And I think buying a condo combines the worst aspects of renting and owning (shared walls, large transaction costs, can have large special assessments).

Renting also involves the time and effort spent locating a suitable home and the expenses associated with moving all your stuff to it (these costs are often unforseeable to the renter).  When I was renting this seemed to happen every 3-4 years.  Nobody ever adds these into their calculations.
I was confused by this at first, but I think you're saying that when you rented, you were forced to move before you wanted to? That hasn't happened to me yet and luckily I've seen minimal rent increases because I'm a good tenant and my landlords want to avoid turnover costs (longest I've stayed is 4 years).


GuitarStv

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #29 on: August 14, 2017, 04:52:24 PM »
No moving because I wanted to.  I had three different landlords over about a 12 year period.  One wanted me out because he was going to gut the place, fix it up, and charge higher rent.  One wanted all tenants out because he was selling to a single family.  One said that he had family coming back from India and wasn't going to rent any more.  Vacancy rates aren't terribly high in this area though (hovering around 1% at the time?), maybe you would have better luck in places where there are more unfilled rentals.

channtheman

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #30 on: August 16, 2017, 05:01:32 AM »
It amazes me that rent is cheaper than owning anywhere.

It really does seem like this points to a very overinflated housing market, which then reinforces the choice to rent rather than buy.

You are very correct about this.  In the Phoenix metro area (and more specifically the east valley - Gilbert/Mesa/Chandler) home prices and especially 3 bed/2 bath home prices are way inflated.  The supply is low and demand is high according to all the realtors I spoke with.  1-1.5 years ago you could get a 3/2 home in a nice area for around 175-200k and now the minimum is pushing up to 225k and higher.  My wife and I were going to buy a starter home to rent out after we had a family and needed a bigger home but found a good deal on a "forever" home for 267k so just went with that.  It made no sense to buy a much smaller home when the home with a pool and enough room for as many kids as we want was only 40k more.

Valhalla

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #31 on: August 16, 2017, 11:54:12 AM »
My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.
Well, yeah, it's true that he has to live somewhere, but there's more to that thought:  If he moved every two years and paid all the fees associated with taking out a new mortgage, he would have been better off renting.  One of the reasons to rent is that it's easier to pick up and leave.
Yes that was one of my friend's arguments.  He had dreams of living all over the world.  He's been saying that every year and has lived in the same city for 20 years, and moved around to try to save money on rent when his rent got raised.

Every time he moved, he had to get rid of stuff at a loss.  Several new beds, sofas, etc later he's at a new place. Ironically he couldn't move around when he wanted to because of annual leases.

Who moves every 2 years anyway? If you're going to move that much yes it's not best to buy a mortgage...but who really does that? Outside of students or military, most people get settled down with a career or job and stay for the long term, not moving around the country.

JLee

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #32 on: August 16, 2017, 01:53:28 PM »
My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.
Well, yeah, it's true that he has to live somewhere, but there's more to that thought:  If he moved every two years and paid all the fees associated with taking out a new mortgage, he would have been better off renting.  One of the reasons to rent is that it's easier to pick up and leave.
Yes that was one of my friend's arguments.  He had dreams of living all over the world.  He's been saying that every year and has lived in the same city for 20 years, and moved around to try to save money on rent when his rent got raised.

Every time he moved, he had to get rid of stuff at a loss.  Several new beds, sofas, etc later he's at a new place. Ironically he couldn't move around when he wanted to because of annual leases.

Who moves every 2 years anyway? If you're going to move that much yes it's not best to buy a mortgage...but who really does that? Outside of students or military, most people get settled down with a career or job and stay for the long term, not moving around the country.

And often shoot themselves in the foot financially. Staying at a job for the long term is an excellent way to earn less money over your working career.

I moved in 2008 (laid off, needed a new job and had to move or commute 1hr+), 2010 (found a cheaper place to live), 2011 (moved across the country), 2013 (bought a house), 2015 (moved across the country for a 60% raise)...

LiveLean

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #33 on: August 16, 2017, 01:59:46 PM »
Florida homeowner for 18 years. No mortgage for much of it. I'd still rather rent. Let's count the ways.

1. Property taxes. We have no state income tax. The reason we don't is that wages are so low. So Florida hammers those with property. Good business model for the state, bad for those of us with real estate.

2. Homeowners insurance. In the 20 years I've lived in the Tampa Bay area, we've had no hurricane within 120 miles of here. We've had major hurricanes in NJ, LA and elsewhere and tropical storms have hit much of the East Coast and done far more damage than Tampa, which hasn't taken a direct hit in 100 years. But our property insurance is insane because of Hurricane Andrew -which hit 300 miles away 25 years ago --- and four 2004 hurricanes that did not come within 120 miles.

3. Maintenance. As others mentioned, you don't own a home. A home owns you. It owns your time. Time spent finding the contractors to fix all of the stuff and time you spend, to say nothing of money. Here in Florida you can take the average life expectancy of any house item -- roof, HVAC, appliances, paint jobs -- and cut it in half because of the sun, humidity, wind, and salt. This is all true whether you've paid off your mortgage or not.

4. There's a reason so many lower income people come to Florida. If you're willing to rent a trailer, forego auto insurance (many do; it's not required), and live on whatever government subsidies and cash paying work you're willing to do, you can lay around most of the day in our wonderful weather. Unfortunately, that makes things more expensive for the rest of us, especially those who own homes.
Living lean at www.tolivelean.com

nouveauRiche

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #34 on: August 16, 2017, 02:38:24 PM »
Florida homeowner for 18 years. No mortgage for much of it. I'd still rather rent. Let's count the ways.

1. Property taxes. We have no state income tax. The reason we don't is that wages are so low. So Florida hammers those with property. Good business model for the state, bad for those of us with real estate.

2. Homeowners insurance. In the 20 years I've lived in the Tampa Bay area, we've had no hurricane within 120 miles of here. We've had major hurricanes in NJ, LA and elsewhere and tropical storms have hit much of the East Coast and done far more damage than Tampa, which hasn't taken a direct hit in 100 years. But our property insurance is insane because of Hurricane Andrew -which hit 300 miles away 25 years ago --- and four 2004 hurricanes that did not come within 120 miles.

If you're renting in FL, you're paying high property taxes and insurance - just not directly.

JLee

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #35 on: August 16, 2017, 03:16:18 PM »
Also depends on what you rent or buy. My sister lived in one of the most expensive areas of the country (maybe world) where the current median price home is $2.5 million. She got paid decently for her job but no way could she buy. Instead she rented a small studio back house of one of the expensive houses (which was a modest 2 bedroom 2 bath place but worth a couple mm$s). Her rent a few years ago startedvat $640/month all inclusive and was around $800/month when she moved a few years later. She saved enough to FIRE and buy a place with cash somewhere lower cost or once/if the housing bubble bursts again.

For myself, who bought an inexpensive low prop tax and low utilities place with cash at the bottom of the housing crash, did well by owning. However it would be MUCH cheaper for me to rent than to buy now. Especially when you add in all the costs involved.

Me too.  My Phoenix house (rented to friends currently) is under $800/yr in property tax and was bought in 2013, right as the market began picking back up.  I'm in NJ now and for what I'm paying to share an apartment, I could cover...property taxes, probably, on a house here.

Timodeus

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Re: The 2017 Cost of Renting vs. Owning a Home in Every State
« Reply #36 on: August 16, 2017, 03:22:02 PM »
My friend argued he didn't know how long he was going to live in a house.  But he had to live somewhere in the last 20 years. It wasn't like he was not going to have any housing expenses at all.  He could have purchased a cheap condo, and if he didn't like it, rent it out and use the rent for another place, or at worst, sell it for what he paid for.  With rent he got nothing in return, zero options for the future.
Well, yeah, it's true that he has to live somewhere, but there's more to that thought:  If he moved every two years and paid all the fees associated with taking out a new mortgage, he would have been better off renting.  One of the reasons to rent is that it's easier to pick up and leave.
Yes that was one of my friend's arguments.  He had dreams of living all over the world.  He's been saying that every year and has lived in the same city for 20 years, and moved around to try to save money on rent when his rent got raised.

Every time he moved, he had to get rid of stuff at a loss.  Several new beds, sofas, etc later he's at a new place. Ironically he couldn't move around when he wanted to because of annual leases.

Who moves every 2 years anyway? If you're going to move that much yes it's not best to buy a mortgage...but who really does that? Outside of students or military, most people get settled down with a career or job and stay for the long term, not moving around the country.

I do, not owning helped make my recent transition to another city across the country very easy. Landlord didn't even make me pay a lease break fee since I was moving for a job. Now, living in a large city with overvalue property, renting is making even more sense. I hope to move within 3 to 4 years so yeah, I'll skip the concrete shoes for now. I do agree with your overall point though and it's the place I want myself and my family to get to, I'd love to be back in my home town (with extended family) and stay there for the long haul.