Author Topic: Is a lifetime of renting a horrible idea?  (Read 19265 times)

socal0218

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Is a lifetime of renting a horrible idea?
« on: May 27, 2015, 02:11:42 PM »
I have commitment issues. 

I'm currently renting in a very high cost of living area, allows me to be within walking distance to work which is an above average salary position nationally, but average in the city I live in.  I have a good family friend as a roommate to help cut the living costs in half as having my own place would really be unreasonable. 

Is it a better game plan to move someplace where the cost of living is closer to the national average rather than the high cost of living in Southern California? I do understand that home ownership really only lowers your housing costs over the long term, but can't be viewed as a quote investment. 

I'm currently in hard-core debt repayment mode and should be debt free by 2016. After that I'll be able to begin saving around 40% of my take-home income, I hope. :/

Every extra penny I can scratch together will go into savings and investments, but I feel that I'm doing something wrong because everyone tells me "renting is just throwing money away."

Any guidance would be greatly appreciated. Thank you

Eric

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Re: Is a lifetime of renting a horrible idea?
« Reply #1 on: May 27, 2015, 02:25:45 PM »
First, it appears that you're only looking at the near future, not really a lifetime worth.  But in many HCOL areas, renting wins, even over the long term, as long as you're investing the difference you save.  The main driver of that HCOL is housing.  I personally can rent for about 1/4 of the amount it would cost to buy, so it's a no brainer.

And no, you're not throwing your money away.  You're exchanging it for a place to live.  As long as you're investing the surplus, you should come out ahead in the long run.  People like to dismiss all the extra costs of homeownership because of "equity", but then conveniently ignore all of the things that you get stuck with paying above and beyond the mortgage payment.  Appliances, furnaces, roof, flooring, water mains, trash, property tax, and god forbid HOA fees.  Whereas all of that is baked into your rent number already, so you already know the maximum outlay, and the amount you'll have left over.

Try the NYT Rent vs Buy calculator to give you better numbers.

If you end up moving somewhere that has lower housing costs, the equation can change.  In the meantime, don't forget to read up on why your house is a terrible investment for inspiration.

rubybeth

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Re: Is a lifetime of renting a horrible idea?
« Reply #2 on: May 27, 2015, 02:28:32 PM »
You're going to get a lot of different opinions on renting vs. buying. And they are just that: opinions. Only you know what works best for you and your preferences. Personally, I like the flexibility of renting when life is uncertain, which is often. DH and I have rented since we got married in 2008, and it's been really helpful, especially at stressful points, to know that we could buy ourselves out of our lease and move in with family, if needed. Right now, my husband is in grad school, and we don't know what will happen with his career once he graduates, so renting offers flexibility. The general recommendation is that, if you don't know if you'll be staying at least 5 years, renting is better, because closing costs add up quickly to buy and sell, and as we learned in 2008, you may not be able to easily sell. DH and I have never had a five year period in the last seven years where we knew without doubt that we would be staying in the same place for another five years, so we continued to rent.

You can use these calculators to figure out the financial part, but only you know your feelings on the subject:

http://michaelbluejay.com/house/rentvsbuy.html
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Also, don't think of it as "throwing money away," it's purchasing a temporary place to live and buying you flexibility.

socal0218

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Re: Is a lifetime of renting a horrible idea?
« Reply #3 on: May 27, 2015, 02:32:28 PM »
Hey Eric,

Thank you so much for the advice.  It seems like everyone I come across just rolls their eyes when they learn I'm almost 30 and renting and I have no intentions of buying a house here. 

Yeah as you stated above there are many "extra" costs that come along with home ownership that the average owner wouldn't include in the cost of their "investment".

Thanks again for the advice.  I've done some dumb things financially over the years and I am trying to not make any more dumb mistakes. 

socal0218

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Re: Is a lifetime of renting a horrible idea?
« Reply #4 on: May 27, 2015, 02:36:52 PM »
Hi RubyBeth,

Thank you for the advice.  I have seen the cost calculators before and with my personal circumstance it will take 8.4 years to break even where I live.  I have lived in the same city for the past 9 years, though 3 of that includes my college years.  I could stay here another 5 years or longer or I could move some place.  I like the option of being able to move and not being tied down to having to sell a house for that process to occur. 

What does DH mean? Sorry I'm new and learning all the abbreviations.

dandarc

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Re: Is a lifetime of renting a horrible idea?
« Reply #5 on: May 27, 2015, 02:42:23 PM »
The H is for husband.  I personally think the meaning of the 'D' can change with context - "Ugh, DH just blew $500 on new golf clubs." vs. "DH just took me on a wonderful date where we first met!"

Eric

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Re: Is a lifetime of renting a horrible idea?
« Reply #6 on: May 27, 2015, 02:43:46 PM »
It seems like everyone I come across just rolls their eyes when they learn I'm almost 30 and renting and I have no intentions of buying a house here. 

Don't worry.  By the time you're almost 40, those same people tend to view you as a lost cause and will ignore your housing choices.  It gets better!  :) 
By then they'll have moved onto why you're still driving that "old" car or why you shouldn't ride your bike everywhere because "danger".  So maybe I should say not It Gets Better, but instead It Gets Different!

forummm

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Re: Is a lifetime of renting a horrible idea?
« Reply #7 on: May 27, 2015, 02:44:36 PM »
Nothing against renting. In HCOL areas, it is often cheaper than buying. Also, if you move around every couple years, it's generally cheaper to rent. Buying a house can be throwing money away too. It all depends on how you do it.

curler

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Re: Is a lifetime of renting a horrible idea?
« Reply #8 on: May 27, 2015, 02:47:16 PM »
I also rent in a HCOL area (DC Metro).  The one thing I am worried about, assuming that I stay in this area long term, is rising prices.  Buying essentially locks in your housing costs, (your mortgage doesn't change with property values) while renting will be more volatile. 

socal0218

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Re: Is a lifetime of renting a horrible idea?
« Reply #9 on: May 27, 2015, 02:47:42 PM »
Haha thanks Eric,

I got most of my bedroom set from a dumpster (not the mattress, ew) and love saying after people comment on how lovely and unique it looks and ask where I go it from.  They usually have to pick their jaws up off of the floor. ;)

Rubic

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Re: Is a lifetime of renting a horrible idea?
« Reply #10 on: May 27, 2015, 03:13:26 PM »
Every extra penny I can scratch together will go into savings and investments, but I feel that I'm doing something wrong because everyone tells me "renting is just throwing money away."

Though I currently own my condo, I've spent most of my adult life as a renter and have never regretted the flexibility it afforded.  People who say "renting is just throwing money away" usually haven't done the math.

mozar

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Re: Is a lifetime of renting a horrible idea?
« Reply #11 on: May 27, 2015, 05:07:49 PM »
I currently own a townhouse, but I think renting is great if you can swing it. I plan on living here 20 years+. I live in a hcol area. I live a bit further out from my job but when I get home all my errand are in walking distance, my parents are nearby, my job moves location almost every year, and I never did too well with roommates.
Though I am looking for a roommate as I find its easier if I have control. My house was 118k. The houses near my work go for 1m. My mortgage plus hoa plus taxes for a 3 bedroom is 1200, for a 15 year loan. A one bedroom near my job is 2500.

superone!

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Re: Is a lifetime of renting a horrible idea?
« Reply #12 on: May 27, 2015, 05:44:02 PM »
I have this dilemma too--also in Southern California. If I look at condos in my neighborhood, they are WAY out of the price range at which I can buy. (And a house? no way in hell) If I look at the edges of where I'd like to live, in a less-walkable, less-safe, less bike/transitable area, I could maybe get a condo. Not a nice condo I'd want to live in for 10 years to make it worth it, but a condo.  I live in a great apartment in a fabulous neighborhood. And yet it feels like throwing money away.

And I do really worry that housing costs in my area will rise and that I'll get priced out of where I currently live. The bigger problem is there isn't a lot that is cheaper to rent than where I am now.

BrickByBrick

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Re: Is a lifetime of renting a horrible idea?
« Reply #13 on: May 27, 2015, 08:34:55 PM »
As most have said, nothing wrong with it.

From a financial perspective, it has to make sense first - again as others have said (rent vs buy calculators and all that).

Other than that your personal feelings come into play...

Renting = flexibility and lower housing costs (repairs, etc.), the only real option if you're only staying a couple years - great if you hate home repairs (less headaches)

Owning = overall cheaper (long-term) depending on where and when you bought it, plus hopefully significant gains in equity, interest write-off (mortgage) helps the equation a little - great if you just like that feeling of owning the dirt under your feet

I prefer owning over renting primarily for the intangible reasons admittedly (not necessarily mustachian)...but it helps that I bought my house at the bottom of the market and have a low interest rate.

 

Roland of Gilead

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Re: Is a lifetime of renting a horrible idea?
« Reply #14 on: May 27, 2015, 08:52:20 PM »
Well, think about the house as if it were an investment instead.  You could view it as a mutual fund with a back end load of 6% (commission fee).   Not many people would want to move in an out of a mutual fund that had that kind of back end load, so if you want to move around more than once a decade, renting makes much more sense than buying.   The caveat is if you get super lucky in a hot market as some have.  The counter to that argument is some people have gotten super lucky with investing in certain managed mutual fund.   If you toss out the luck factor, renting beats home ownership in the short and maybe medium term stay.

Merrie

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Re: Is a lifetime of renting a horrible idea?
« Reply #15 on: May 27, 2015, 09:13:26 PM »
Renting gives you more flexibility. If that flexibility is working in your favor now, why not continue to rent? There's no reason you can't buy a house down the line if you decide that you want to, but if you buy and decide that you'd rather go back to renting it can be a huge expensive pain to get out. If you aren't sure, better to wait. I let myself be talked into buying a house and in hindsight we really should have waited until we got the debt paid down; if I could do it over again, I would have waited.

Bob W

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Re: Is a lifetime of renting a horrible idea?
« Reply #16 on: May 27, 2015, 09:38:20 PM »
If you don't pay for a house you essentially have a 30 year lease to own agreement with tons of risk and downside.   Keep renting.

LouLou

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Re: Is a lifetime of renting a horrible idea?
« Reply #17 on: May 27, 2015, 10:00:44 PM »
Thank you so much for the advice.  It seems like everyone I come across just rolls their eyes when they learn I'm almost 30 and renting and I have no intentions of buying a house here. 

I know many people in their 40s and 50s who have to deal with the hassle of renting out the houses they bought when they were 30ish because it felt like the "next step," but no longer works for them. They have to deal with lawns, electrical systems, plumbing disasters for multiple houses! And they aren't making a profit either!

DH and I own our house, but we are fairly confident that we want to live precisely in this spot for decades, and we managed to get our house for $150,000 less than other houses in the neighborhood (in LCOL area).  Buying the house makes the most sense when you are truly committed to living in one particular place and you get a great deal, in my opinion.

Roland of Gilead

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Re: Is a lifetime of renting a horrible idea?
« Reply #18 on: May 27, 2015, 10:05:11 PM »
  Buying the house makes the most sense when you are truly committed to living in one particular place and you get a great deal, in my opinion.

That is the problem, getting the great deal.

What if you had rented and put the down payment you made into Tesla stock back in 2012 or so?  That would be a great deal also!

Ricky

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Re: Is a lifetime of renting a horrible idea?
« Reply #19 on: May 28, 2015, 01:54:36 AM »
Not only has this topic been beat to death, there are too many moving parts involved to make a one size fits all statement. Even if renting is more expensive, some may value the flexibility and hands-free approach in their dwellings. Even if housing is more expensive, some may value the intangible feeling of "owning" something and being able to do what they want with it whether it's renting a room out or making one room out of three.

It just doesn't make sense until you pick an area and look at the numbers. You can throw up hypothetical numbers all day long and convince yourself that one is better than the other, but at the end of the day it's still all hypothetical.

There are only a few generalities:

1. It's better to at least rent at first if it's an area you're unfamiliar with or the least bit unsure of.
2. The more equity you have in your home, the more opportunity costs you have since you could sell it and put the money in other investments.
3. A mortgage for some people can be a forced savings account. If owning is as cheap or cheaper than renting and you don't foresee transaction costs or capital losses offsetting any savings then you should definitely buy.

My personal ideal housing situation is a 3/2 where I would rent 2 bedrooms. In lots of areas, this generally would cover housing costs and may even create a profit. A 3/2 isn't much more than a 2/2 and a 1/1 just doesn't make sense to me if owning unless if it was an incredible deal.

Or, even better, a duplex where one side is rented. Again, in lots of places this will at least cover all housing costs or at least a huge chunk.

In your situation, the extra pay probably covers the difference in housing costs so I wouldn't worry about it. This is generally the case with HCOL areas, thus why so many people move there in the first place.
« Last Edit: May 28, 2015, 03:42:05 AM by Ricky »

fb132

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Re: Is a lifetime of renting a horrible idea?
« Reply #20 on: May 28, 2015, 01:57:26 AM »
Well it depends, someone who is trying to live a MMM style life under low income and lives in a city like Vancouver is better off renting than buying, the housing market is crazy there.

alsoknownasDean

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Re: Is a lifetime of renting a horrible idea?
« Reply #21 on: May 28, 2015, 06:04:25 AM »
Like has been said earlier, depends on the area and how long you want to stay there. Also may need to take into account your family situation. If someone is coupled up with kids, buying is likely to make more sense for them than if they are single (more solid roots with kids in school, etc).

One more thing is whether you would buy the same type of place you rent. I rent a one bedroom apartment in expensive Melbourne, but if I was buying I'd probably want to buy at least a place with a second bedroom. Renting a one bedroom doesn't matter to me because it's easy to move if I need more space.

socal0218

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Re: Is a lifetime of renting a horrible idea?
« Reply #22 on: May 28, 2015, 08:27:53 AM »
I was trying to be specific in my example.  Single young professional in Southern California.  No kids, no pets, no boyfriend. 

I am sorry this topic has been "beaten to death" but in the grand scheme of things with the recent housing debacle as well as the cyclical housing market data we have over the last 90 or so years it seems to be a pretty wise idea to rent in my situation, no?  I thought this was the "Ask a Mustachian" forum, not the "ugh the topic has been beaten to death, why is this idiot still asking a dumb question forum".  I apologize, but I am still new here and getting my financial house in order.  This site was recommended by another forum I was on.

Reepekg

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Re: Is a lifetime of renting a horrible idea?
« Reply #23 on: May 28, 2015, 09:01:53 AM »
I was trying to be specific in my example.  Single young professional in Southern California.  No kids, no pets, no boyfriend. 

With your unattached status, I don't think you have enough information to make a wise buying decision. What if you meet a significant other who has different housing preferences? What if you buy a 4 bedroom place and only end up with 1 kid? What if you get a great job opportunity in New York?

A lifetime of renting isn't always a horrible idea. In my own HCOL area, my rent is less than just the taxes on owning a place (which is crazy). A lifetime of renting is the only logical option if you do the math.

The biggest part of being Mustachian is learning how to tune out society's messages about what you're supposed to do, and make an optimal choice instead.

Manguy888

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Re: Is a lifetime of renting a horrible idea?
« Reply #24 on: May 28, 2015, 09:14:44 AM »
From a financial standpoint, it's hard to beat that NYT calculator linked above. I spent a lot of time making my own rent vs. buy spreadsheet, tweaking all of the variables and assumptions, and it essentially matched what the NYT said.

When using that calculator, one huge assumption is the maintenance costs of owning a house. I think they set it to 1% the price of the house per year, but I'd set it to 2% as that has been my experience. Just that one change really affects the final numbers. People that brag about their home appreciation almost never tell you about all the cash they spent on landscaping, fixing the roof, replacing the boiler, etc. Every time you step into Home Depot as a home owner 100-150$ magically disappears from your pocket.

So that's the finance side. From the personal side, I also think renting is a good idea. I bought a house as a 'single young professional', but now that I'm married with kids I'm finding that the house doesn't quite fit us right, and schools are better one town over, etc etc. We're looking to sell and buy a new house, which is a pain I wish I could avoid.

So that's just one person's experience, but if I could do it over again I would probably have continued renting as a single guy and waited until I was more settled to make my purchase decision. Good luck with your decision

amused_bouche

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Re: Is a lifetime of renting a horrible idea?
« Reply #25 on: May 28, 2015, 09:29:40 AM »
I'm also in a HCOLA (Boston) where falling apart 'starter' homes are going for $350-400K. I will only feel comfortable buying when we have a solid $100K saved up, so DH and I are happily renting for the foreseeable future. It was great this past winter when I could peek out the window at the crew our landlord hired to plow the driveway, shovel the walkways, and dig out around our cars. (Including the other tenants. We are a 1-car family. Woot!)

When people say you're "throwing you money away" I tell them that we're building liquid equity in our savings account and we're not losing any money to mortgage interest. Our rent increases 2% each year so we just anticipate that.

Does property tax fluctuate each year or is it always the same?

GuitarStv

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Re: Is a lifetime of renting a horrible idea?
« Reply #26 on: May 28, 2015, 09:37:53 AM »
Property tax depends on where you are.  Ours is very low at .7% per year and can't be increased by more than 5% of that amount each year.

Manguy888

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Re: Is a lifetime of renting a horrible idea?
« Reply #27 on: May 28, 2015, 09:39:40 AM »
"Does property tax fluctuate each year or is it always the same?"

Property tax fluctuates, if not every year then every few years. It does this in two ways: the town can change the tax rate ($'s of tax per 1,000 of assessed home value) or they can change the assessed value of your house.

socal0218

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Re: Is a lifetime of renting a horrible idea?
« Reply #28 on: May 28, 2015, 09:40:49 AM »
I don't know about the property tax thing, fluctuating. My assumption would be it always goes up. Do taxes ever go down for the middle to low-income earners?

My bigger question would be over the long haul to analyze the true cost of ownership. Every time you have to replace an appliance, or fix a light fixture, or pay the landscapers to trim the bushes all of that has to go into the cost of the "smart investment", but as people are reiterating on here, it seems no home owner seems to account for their costs.  Even if they do all the work themselves, their time is still worth something.  I'd rather spend my weekends exploring a new hike than fixing a leaky gutter.

amused_bouche

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Re: Is a lifetime of renting a horrible idea?
« Reply #29 on: May 28, 2015, 09:41:52 AM »
"Does property tax fluctuate each year or is it always the same?"

Property tax fluctuates, if not every year then every few years. It does this in two ways: the town can change the tax rate ($'s of tax per 1,000 of assessed home value) or they can change the assessed value of your house.

That's what I thought. Thanks! To me that is equivalent to an annual rental increase so it's a wash.

Manguy888

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Re: Is a lifetime of renting a horrible idea?
« Reply #30 on: May 28, 2015, 09:47:25 AM »
It can get complicated too, at least where I live. We want to move to an adjacent town with a much lower 'tax rate', but I just found out that they assess their houses more generously and probably we'll end up paying more total.

Basically, towns figure out how much money they need, then tweak the two variables they have until they get that much money, unless there are laws in place to cap increases. That's my experience anyway.

MustacheNY

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Re: Is a lifetime of renting a horrible idea?
« Reply #31 on: May 28, 2015, 10:55:17 AM »
One additional thing to keep in mind when using these rent vs. buy calculators is the input price for what you forecast the future sales price is one of the primary drivers of whether it makes sense or not to rent vs. buy.  With interest rates as low as they are they really have nowhere to go but up over the next 5-10 years, you have to consider this impact on the sales price of the home.  Even if buying is cheaper than renting, unless you plan on renting out the home when you move, you seriously need to consider what the resale market will look like.  If you take a $500,000 home at 4% interest with 20% down, you will be looking at monthly payments of about $1,910 a month.  If interest rates go up to 7% over the next few years, which is very feasible and closer to the historical average, that same house would have to sell for $358,000 to still be affordable at the $1,910 a month.  That same house would cost $2,660 a month at $500,000 with 7% interest rates.  Obviously, there are other factors at work such as inflation, and economic development of a region that will also influence prices, however this very reasonable expectation of longer-term trend in interest rates can create almost a 30% headwind against housing prices.  Therefore, if you are relying on a 5-7 year time horizon of housing prices increasing with inflation, you may want to stress test this to see if it still makes sense under slightly more adverse conditions.

That being said, it can still make sense to buy if you know that you are going to be in place for a very long time, or if you can capture enough rent on the property to offset all associated costs, including vacancy if you were to move early and hold onto the property. 

JoJo

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Re: Is a lifetime of renting a horrible idea?
« Reply #32 on: May 28, 2015, 12:34:28 PM »
I would be retired now if I hadn't bought a condo :(

It added at least 2 years to my working years due to losses over what I would have paid in rent.

Ricky

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Re: Is a lifetime of renting a horrible idea?
« Reply #33 on: May 28, 2015, 06:58:15 PM »
I was trying to be specific in my example.  Single young professional in Southern California.  No kids, no pets, no boyfriend. 

I am sorry this topic has been "beaten to death" but in the grand scheme of things with the recent housing debacle as well as the cyclical housing market data we have over the last 90 or so years it seems to be a pretty wise idea to rent in my situation, no?  I thought this was the "Ask a Mustachian" forum, not the "ugh the topic has been beaten to death, why is this idiot still asking a dumb question forum".  I apologize, but I am still new here and getting my financial house in order.  This site was recommended by another forum I was on.

I was prefacing my own post, not really replying to you directly. I do not consider your post question specific enough (especially the title) to give you a specific answer, thus I didn't. If you do a custom Google search you'll find a ton of similar questions on this forum alone, much less the webz.

We can't answer whether it would be better for you to move out of SoCal since we don't know what other opportunities you have elsewhere. In general, as long as your paycheck matches the HCOL area, you're going to come out ahead and renting is the way to go most of the time. If you're working a job you could get anywhere, then maybe a LCOL area would make more sense. For instance, why would anyone move to LA to work at "In N Out"?

Lesson: don't feel bad about renting, especially in a HCOL area. It can even make perfect sense in a LCOL, so don't sweat it.

nobodyspecial

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Re: Is a lifetime of renting a horrible idea?
« Reply #34 on: May 28, 2015, 09:26:50 PM »
Renting gives you more flexibility.
But less stability. Friends are having to move out of their rental (owner is selling) and because rental supply is so low here they are looking at having to move to a new area of town,  move kids to new school, etc



Merrie

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Re: Is a lifetime of renting a horrible idea?
« Reply #35 on: May 30, 2015, 02:30:58 PM »
Renting gives you more flexibility.
But less stability. Friends are having to move out of their rental (owner is selling) and because rental supply is so low here they are looking at having to move to a new area of town,  move kids to new school, etc

True. It's a balance between those things. For people whose lives are somewhat in flux, like the OP, the less stability may be less of a big deal if they were more or less planning to move in the next few years anyway.

Buying a house you can't afford or aren't ready for is instability in a really bad way, too.

MacGyverIt

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Re: Is a lifetime of renting a horrible idea?
« Reply #36 on: May 31, 2015, 06:04:16 AM »
I always loved the flexibility of renting until in 2011 when after years of living in apartments and having to move after a year or two b/c the rental company/owners kept upping the rent, I finally got fed up with the rent upping. (Like OP, I also lived in a very high rent/super high housing area.) I bought a condo when prices dropped -- 100k less in 2011 than my neighbor bought in 2006. Totally agree condos and HoAs suck but houses are too expensive in these high COLA areas :(

Condo 205K and I put 25% down. My mortgage + property tax is $931 and HoA $225 per month = $1156. My last apartment started out at $1500 and ended after two years at $1650 (I left/bought the condo when they tried to bump me to $1800). It was a relief to know exactly what my mortgage would be year after year. I love having my own place for that stability, the tax breaks and I enjoyed the ability to make what modifications I wanted without asking "may I".

I recently moved for work and I'm renting the place out; after mortgage, HoA and property mgmnt (less initial fees, of course) I'm clearing $424 monthly. In addition, b/c I bought at a good time my condo has increased in value 50k since my 2011 purchase.

Honestly, I've not sat down and figured the long term math on the condo -- I put a lot into the place to upgrade the bathrooms, etc. I'm ballparking between the money put in minus tax breaks and (per zillow) appreciation, the condo has broken even. If my new renter is a good one, the income will continue as $424 minus the $500 annual "lease renewal" charged by my property mgr. (Insane cost for a signature but that seems to be the norm in a high cost area.)

I need to sit down and do the math so I can know definitively. I'm fortunate my relocation and current housing is free so I didn't have to pay any expenses, that makes the "was this the right decision" a lot easier. Plus, when I return in 3-9 years, I'll have a place to return to that is (mortgage+HoA) a lot less than what rent will be running in the area.

Mac
« Last Edit: May 31, 2015, 06:06:49 AM by MacGyverIt »

2Birds1Stone

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Re: Is a lifetime of renting a horrible idea?
« Reply #37 on: June 02, 2015, 04:02:16 PM »
Don't feel bad renting!

As others have already pointed out, it can not only make a lot of sense financially but also gives you the freedom and peace of mind to get up and go when you need/want to. That is priceless in my book.

I live in Suffolk County, Long Island NY a VERY expensive area. Here our taxes are 3% of home values, which are high to begin with. For frame of reference I pay $550/month for my half of rent/utilities, median property taxes on a house here are $1000/month. Insanity.

jackiechiles2

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Re: Is a lifetime of renting a horrible idea?
« Reply #38 on: June 02, 2015, 07:36:13 PM »
Rent in 30 years will likely be much higher than it is now.  At least in 30 years with buying you'd theoretically have no payments to go up.

Rubic

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Re: Is a lifetime of renting a horrible idea?
« Reply #39 on: June 03, 2015, 06:19:31 AM »
Rent in 30 years will likely be much higher than it is now.  At least in 30 years with buying you'd theoretically have no payments to go up.

Property taxes and HOA fees (if applicable) will go up.

mrmiyagi

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Re: Is a lifetime of renting a horrible idea?
« Reply #40 on: June 03, 2015, 08:20:54 AM »
OP - at your age, being single, and living in Southern California, I think renting makes a ton of sense. Especially since you already have a good roommate situation.

In my case - I really enjoy being a homeowner, and it's been a great move financially for me too. I can't stand articles that come down hard on one side of this issue - e.g. "renting is just throwing your money away" or "owning a house is a terrible financial decision". It really depends on your personal situation. Where do you live? How long are you staying there? Are you capable/willing to fix stuff on your own? Etc. For you, it looks like renting is the right call, but everyone's situation is different.

Ricky

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Re: Is a lifetime of renting a horrible idea?
« Reply #41 on: June 03, 2015, 08:34:10 AM »
Rent in 30 years will likely be much higher than it is now.  At least in 30 years with buying you'd theoretically have no payments to go up.

Property taxes and HOA fees (if applicable) will go up.

As do opportunity costs, which no one seems to factor in. One might think the house they purchased for $100k that is now worth $300k was a great investment, but unless it's sold then there is an extra $8k/yr in opportunity costs or $200k in unrealized capital gains. Once you factor that into your comparison of renting then it might make more sense to sell and rent. Of course it all depends and rent might be increasing faster than the price of homes.

mrmiyagi

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Re: Is a lifetime of renting a horrible idea?
« Reply #42 on: June 03, 2015, 08:58:00 AM »
Rent in 30 years will likely be much higher than it is now.  At least in 30 years with buying you'd theoretically have no payments to go up.

Property taxes and HOA fees (if applicable) will go up.

True, but not as much as rent. They might go up a similar percentage, but rent will have a much larger true increase since it's a much larger number. For the owner, the bulk of his monthly payment (principal/interest) remains fixed.

dsmexpat

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Re: Is a lifetime of renting a horrible idea?
« Reply #43 on: June 03, 2015, 09:00:38 AM »
Hey Eric,

Thank you so much for the advice.  It seems like everyone I come across just rolls their eyes when they learn I'm almost 30 and renting and I have no intentions of buying a house here. 

Yeah as you stated above there are many "extra" costs that come along with home ownership that the average owner wouldn't include in the cost of their "investment".

Thanks again for the advice.  I've done some dumb things financially over the years and I am trying to not make any more dumb mistakes.
The groupthink of peers is not a reliable source of financial advice.

Villanelle

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Re: Is a lifetime of renting a horrible idea?
« Reply #44 on: June 03, 2015, 09:06:49 AM »
"Does property tax fluctuate each year or is it always the same?"

Property tax fluctuates, if not every year then every few years. It does this in two ways: the town can change the tax rate ($'s of tax per 1,000 of assessed home value) or they can change the assessed value of your house.

In CA, due to Prop 13 property taxes can only increase minimally every year.  They can't exceed 1%, so there isn't much the town can do, and the home values are never reassessed.  Once you buy, you can easily calcualte exactly what your maximum property tax bill will be for as long as you own, because your purchase price is looked in and the taxes can only increase 2% per year, even if the property doubles in value.   

Quote

Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.

The proposition decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to exceed 2% per year. It also prohibited reassessment of a new base year value except for in cases of (a) change in ownership, or (b) completion of new construction."

So while HOA fees can still go up, property taxes go up so little that they generally don't even keep pace with inflation.  2% per year, max.  And no reassessing of property values *except* if your value decreases, in which case you can apply to have the assessed value (and your taxes) decreased. 

slugline

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Re: Is a lifetime of renting a horrible idea?
« Reply #45 on: June 03, 2015, 09:22:29 AM »
As do opportunity costs, which no one seems to factor in. One might think the house they purchased for $100k that is now worth $300k was a great investment, but unless it's sold then there is an extra $8k/yr in opportunity costs or $200k in unrealized capital gains. Once you factor that into your comparison of renting then it might make more sense to sell and rent. Of course it all depends and rent might be increasing faster than the price of homes.

Yes to thinking of opportunity costs. And yes to "it depends." In some situations mortgage payments are smaller than rent, causing the renter to possibly be missing out on opportunities to save and invest the difference.

dodojojo

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Re: Is a lifetime of renting a horrible idea?
« Reply #46 on: June 03, 2015, 09:24:46 AM »
I'm a lifelong renter. I just received my annual rent raise letter.  It's annoying of course but the property owners are in business not running a charity.  Credit to them--this year's increase is 2% and I think it's been around 2-4% over the 9 years I've rented.  Since my rent is still much lower than the market rate in my HCOL neighborhood, the incentive to move just isn't there.

Habitable SFH here start around the 7 figure mark.  The ones in the high 6 figures need work or more commonly, bulldozed and McMansions pop up.

I would love to be able to afford to live in a walkable town center in a nice comfy townhouse or house. But you can't always have it all.  So I've opted to pay for the former and forego the latter.  Not having to deal with car ownership is too big of bonus for me to give up.

norabird

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Re: Is a lifetime of renting a horrible idea?
« Reply #47 on: June 03, 2015, 10:16:32 AM »
Quote
I am sorry this topic has been "beaten to death" but in the grand scheme of things with the recent housing debacle as well as the cyclical housing market data we have over the last 90 or so years it seems to be a pretty wise idea to rent in my situation, no?  I thought this was the "Ask a Mustachian" forum, not the "ugh the topic has been beaten to death, why is this idiot still asking a dumb question forum".  I apologize, but I am still new here and getting my financial house in order.  This site was recommended by another forum I was on.

Aw, just wanted to say I sympathize. When it is your life, and you are unsure, you want to go over the same ground as others before, because you're not them, and you want a place to think it out. I get it!

My parents bought an apartment for me in NYC which is great, don't get me wrong, but I still sometimes wish I had the flexibility of being a renter. In a HCOL area it definitely makes more sense to rent unless you have very long term plans.

SpicyMcHaggus

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Re: Is a lifetime of renting a horrible idea?
« Reply #48 on: June 03, 2015, 10:29:27 AM »
Renting may be cheaper than owning in the short term, but over 10-15 years, probably not.
Better yet would be purchase a duplex and rent 1/2 of it. Currently DW and I pay $400+ utilities toward our living in a beautiful flat in a duplex.
We are looking into buying a second larger duplex, renting the current one and moving to the larger. It would be easy to rent in this neighborhood, and we could buy another every 2 years. Do the math for your area.

Kaspian

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Re: Is a lifetime of renting a horrible idea?
« Reply #49 on: June 03, 2015, 10:32:45 AM »
This is a good question for those people in the US who thought they could retire in 2008 because they were "house rich" on paper.  ...As it turns out, you can't eat your house.