The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: travelbug on September 16, 2013, 03:38:22 PM
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Hi,
How do you get over the fact that even though renting costs waaaaaay less (especially here in Australia) each month then owning at a similar standard that your programming still thinks it's the right thing to invest in?
How do you rewire your brain? Besides living in the moment....LOL.
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Funny, we moved to Oz (Paramatta) a number of years ago and thought about buying a house. Then we found out about negative gearing and just...no way!
We get around it by owning a different home in a cheaper COL area, which we rent out.
Where we live (Beijing) there's a massive housing bubble, and real estate is insanely overpriced for what you get. Though we could buy here legally, there's no way we'd be interested to do so.
Someday we hope to live in a house we own. But for now, looking at photos of our home/staying in it for holidays has to do!
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How do you get over the fact that even though renting costs waaaaaay less (especially here in Australia) each month then owning at a similar standard...
Maybe renting costs more in Australia than owning at a similar standard, but that is not the case hereabouts. Renting a similar place to mine would run about 1.5-2 times my mortgage+taxes+insurance. (Then figure about 1/3 of my total payment goes to principal, plus I get a mortgage interest tax deduction). I could rent a downmarket 1-bedroom apartment for less than what I pay, but there are plenty of 1 & 2 bedrooms going for way more.
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Travelbug, I'm in the same boat. I was house-hunting in August but no matter how many times I ran the numbers, nothing beat renting. I'm in one of the bubbliest real estate markets in the US. Discovering MMM only reinforced my u-turn from buying and sticking with my one bedroom apartment.
Of course none of that prevents me from checking Redfin daily. Like about 10 times daily.
I think I'm only going to get over when I redirect my cash down payment towards investing and debts. Once that down payment is no longer ready at hand, perhaps that home ownership jonesing will go away.
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It all depends on where you live, and how much you enjoy control over your home.
However in my area, I just calculated the mort interest, property taxes, and maintenance was about 900 a month. Cost to rent - 2400 a month. So it clearly makes sense to rent.
Note - I deliberately excluded principle payments, as that money is not "wasted" like rent.
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We used to own a house and I loved having it, but we ended up selling it to relocate for a job pretty quickly after we bought it. Once we sold the place it was like a weight lifted. When you rent you have to deal with maybe having shitty landlords, but that's about it. When you own you are in charge of EVERYTHING and it's more overwhelming than I realized!
Plus it's way more permanent. If you have a crappy neighbor when you rent, you can move when your lease is up. If you have a crappy neighbor when you own, you're pretty much screwed. It's been 2.5 years since we moved and although I am tempted to buy, I'm going to keep renting. In fact I think we're going to downsize from renting a small rowhouse to renting an apartment. I may buy a multi-family place and live in one unit and rent the other when I get my finances in order, but for now I'm going to enjoy stress-free living.
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I'm not sure I would buy a house if it would cost a lot more than renting the same house.
I bought my house at the end of last year, mainly because where I live it is a better financial decision.
Another thing to consider is rent will always go up, but you can get a fixed rate mortgage. So maybe owning won't look as good in the beginning, but will start to look better as rents go up but your house payment doesn't.
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I've "owned" a home for almost 5 years now. I still refer to my mortgage payment as rent. I refinanced into a 15 year loan and almost half of my payment goes to principal now. I still don't feel like I own the home because I don't own it outright. I'm not sure if other people feel the same way but you may still feel like a renter even if you purchase a home. No matter what you do you'll likely see ways that it could be better, it sounds like renting is a better option in your case unless there is a compelling reason to own. If you can make a large down payment you may have a greater sense of ownership.
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I was house-hunting in August but no matter how many times I ran the numbers, nothing beat renting. I'm in one of the bubbliest real estate markets in the US.
Perhaps this goes without saying, but I'll say it anyway: Don't buy into bubbles. Wait until the bubble bursts.
This is another factor in the rent vs buy decision. When you buy, you pretty much fix your "rental" costs to the market at the time you buy. So over time, the cost of renting is likely to increase, while the amount of your (mortgage - principal) payment decreases. So if you intend to stay in the same area for a long time, even though renting may be cheaper today, it probably will become more expensive as time passes.
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You really have to look at ALL the costs of owning your home. I do and have for many years, but its not necessarily the best financial decision. To those who say your rent goes up, but your mortgage doesn't, I have one thing to say--real estate taxes! Believe me those go up just about every year no matter the market. Also, you have to be careful where you buy. Savings money by buying in an up and coming area can be risky. The area may never really become hot or it may be an area you don't necessarily want to live in down the road (school districts). Somewhere that works for you in your 20s may not do you in your40s.
Too many people ignore or fluff the math of owning. Maintenance, taxes, cost of amenities versus living in a rental that offers amenities, assessments for water, roads, schools...those things really add up over the years, and then maybe your neighborhood turns sketchy, and you really do see the beauty in renting and staying mobile. But it truly is an individual situation depending on where you live and how you live. Just don't assume that owning is better.
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Nah, renting is not sooooo much cheaper. It might appear so in some markets, or if you're only looking at your month-to-month expenses . . . but if you consider the cost over your whole lifetime, the majority of us will do better owning a house.
My situation: We bought a house when we were married, and we paid extra on it every month. In eleven years, we paid off the mortgage. It was then OURS, and we could live in it for the rest of our lives, paying only maintenance, taxes, etc. We ended up selling and rolling the profit into the house where we live now, which has always been mortgage-free. I will probably be on this earth another 50 years, and I have to live somewhere. Because I've finished paying my mortgage, I am free to stay right here, paying only the "extra" costs of owning the home for the rest of my life. That's where the big benefit of owning comes into play.
The road not taken: If we'd rented for those eleven years, it would've cost a little less initially . . . but prices did go up in those years, and by the end rent would've cost more than our mortgage. And at the end of the eleven years, we'd have had nothing. We couldn't have bought this house mortgage-free, if we hadn't had the value of that first house available to us.
As for ALL the costs of owning your home, don't kid yourself: When you rent, you are paying maintenance, taxes, etc. You're just paying them indirectly through your landlord. Think this through: If renting a house were cheaper, why would anyone ever buy houses to rent? No one would purposefully buy houses and rent them out to others just so they could lose money every month.
It is true that you have more freedom when you rent, but -- for us -- owning has been profitable enough to give up the freedom to pick up and move anywhere we want.
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I like owning my home for a couple of reasons:-
1. It gives me a good base with regards to costs and location which is important when I have 3 young children.
2. When I pay off my mortgage I figure that I will only downsize my house. This means that for the rest of my life my housing costs should be a lot cheaper than if I rented. Even if I choose to rent I will either receive rental income or I will have a big stockpile of money to put towards rent. I suppose owning is therefore a hedge against housing costs for life.
On the flip side I don't like having to maintain my house and I would like to live somewhere else at some point. I'm not into travelling but I would like to live somewhere else for 6 months or some extended time period when I retire. I figure this would be easier if I didn't own my house.
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Thankyou all for replying.
We have owned a house, and upgraded them, for the last 14 years. We have owned our current one for 4 years, so I do understand how great it is with no mortgage.
I suppose our situation is a bit different as we do not know where we want to live. We will be selling up our 800k (!!!!OMG!!!) house and all our stuff and travelling the world. The income on the 800k invested gives us approx 40k, or 32k after tax. So I am debating whether we can keep this invested and not spend it all on rent so it rolls over and over as 32k= $615 rent per week. In many countries we would not spend anywhere near that.
We also have real estate here in Australia that is owned and pays income, it is commercial.
We are also now looking at buy a place for my parents and they will live in it until they die (hopefully 20+ years) and pay us "rent". We are happy as we have a guaranteed tenant who will not wreck the place and a mortgage paid off in 20 years or so.
The figures make sense to keep the money from our current house invested and have no permanence with our lifestyle. We can live somewhere for 6-12 months and then move on.
I read this last night and it resonated with me, especially the housing part. (but all of it as it's what we are essentially going to do but we will have two children in tow).
http://lifepart2.com/the-stuff-of-life-why-i-sold-all-my-belongings-to-travel-the-world/ (http://lifepart2.com/the-stuff-of-life-why-i-sold-all-my-belongings-to-travel-the-world/)
I am interested in how other mustachians see the owning v renting as we are FI and almost free (next year), I have been able to cope with the mustachian way of seeing things in every other aspect but this one has been frying my brain...
TB
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I'm not into travelling but I would like to live somewhere else for 6 months or some extended time period when I retire. I figure this would be easier if I didn't own my house.
Though you could look into house swapping.
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To those who say your rent goes up, but your mortgage doesn't, I have one thing to say--real estate taxes! Believe me those go up just about every year no matter the market.
I thought they were pretty consistent, but I am a new home owner/mortgage slave and don't have experience with it. Maybe it depends where you live. I think there is a law that fixes the taxable value of your home at your purchase price, which could be good or bad when the market goes up or down later on. But I think you can get a new assessment to base the taxes off of when you want.
How much have yours gone up, MKinVA?
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Our real estate taxes have gone up from 3600 a year to 5200 a year through the boom years of 2003 to 2008. They have fallen to 4400 this year. It really does depend on where and how you live. My city is on the list of best places to rent because house prices are too high and you really can't get a rental that covers all your costs (assuming an apples to apples comparison). Most of the older neighborhoods have gotten so expensive that the older people are moving out because the taxes are high. When you are talking about 500 a month jus t for real estate taxes, it will drive you to move. I'm a few years from downsizing, but have been looking and I may be downsizing in terms of size, but price? Probably not.
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Josh, I live in Virginia and we don't have any restrictions on taxing real estate. For the most part, your house is valued (assessed) each year and you pay on that value. Some states do cap taxes at purchase value plus X, but most states don't. You need to look at what the taxes are and any limits in your county. And don't forget assessments added by service districts for water, sewer, roads and schools.