Author Topic: What's wrong with renting forever?: Stigma of non-home ownership  (Read 41459 times)

monkeytree

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For a small family whose members are a combination of busy, lazy, and totally inept at house upkeep-related activities living in a HCOL region where a decent house in a good school district would start around 300-400k - would there be anything wrong with renting forever?? If you met a family like this, what would you think? Would you start judging? Because I think I would....

So to start with some background: I'm married with a 5-yo son, joint household income is about $130k, the only debt is student loans (about $25k that we'd like to pay off by the end of 2016, and about $150k of mostly grad school federal loans that should be forgiven in less than 10 yrs so just paying the minimum income-based amounts now).

We're renting a somewhat pricey (but not too crazy for this area) 2-br + den apt (~1300 sf) which is in a great location (northern VA), with great schools and community, easy access to public transportation, walkable to a lot of places (so we're hardly ever using our paid off car - we fill up maybe once or twice a month), the management company is awesome about maintenance/responsiveness, grocery store right across the street, gym in building, etc. So basically we've been here a few months but have really, really enjoyed being here. My son absolutely loves the school (and so do we).

Our mid to long term financial goals -
1) pay off $25k student loan in 1 year
2) start maxing out our 401ks (right now, we're putting in about 13% including agency matching)
3) save aggressively for a down payment on a house (not even sure how long it would take us to save up 20% plus be able to afford a decent place....we'd be starting from scratch as we have no real savings (~$1k in savings account, $60k in retirement)
4) Maybe retire early for me, but my husband wants to work as long as he can....so I guess semi-FI would be our ultimate goal

So we're right on track (and both on board) with #1 and 2.

However, a) we've loved living here so much, b) are daunted by the uber high housing prices and c) are kind of afraid of unexpected things that could break and we'd both be clueless as to how to fix them (ie: call a professional and spend more $$$) that we've started half-jokingly discussing the option of just renting forever and just invest our "down payment fund" to build up our savings. Added to the above is the fact that it would take us at least 3-4 yrs to save up 20%, which seems so long!

Based on my calculations, even assuming rent increased 1-2% a year, it would be more affordable compared to a mortgage on a $400k house which would be on the lower end of the spectrum here (and presumably more prone to expenses as opposed to a newer, more expensive house). Space-wise, we do want another child, but that prospect is looking dimmer and dimmer as I get older, so if nothing changes in our family situation, I don't see a huge problem with 3 people living in a 1300 sf space until our son leaves for college. I could also see us renting for 10 years or so and just outright buying a house with cash.

So those are all the pros....which, now that I've written it all out, seem even more attractive.

Now for the cons - the stigma of not owning your own home (even my boy has asked why most of the kids on his bus live in a "real" house and we don't! haha) - is this just something I'm being paranoid about or is it a real thing?  Also, never really having our own outdoor space, garage, basement for kids, etc.; not enough room for guests; never having a paid-off house (and the financial flexibility/security that comes with that, especially when we're older/retired)...what else?


rubybeth

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #1 on: October 14, 2015, 11:13:07 AM »
Now for the cons - the stigma of not owning your own home (even my boy has asked why most of the kids on his bus live in a "real" house and we don't! haha) - is this just something I'm being paranoid about or is it a real thing?  Also, never really having our own outdoor space, garage, basement for kids, etc.; not enough room for guests; never having a paid-off house (and the financial flexibility/security that comes with that, especially when we're older/retired)...what else?

Well, you may be asking the wrong group, because in general, I think Mustachians kinda don't give a crap about what people think of them. Honestly, you should probably try to care less about what other people think, in general. It will lead to more happiness and freedom. :)

Aside from that, I don't think there's anything wrong with renting, especially when you know it makes long-term financial sense. DH and I have been renting since we got married over 7 years ago, and if anyone gives us crap about not owning a place yet, we can start the litany of reasons why we don't--we're just prioritizing other stuff (travel, education, paying off debt), and renting affords us a lot of freedom (want to be away for the week? lock up and go), and it's kinda been risky to buy a place since we got married in 2008 (hey, remember that fun housing bubble?) and we're never sure that our jobs will be secure (hey, remember the recession after the housing bubble burst?). So maybe to some people, you'll look like those idiots who rented forever, but to those who know better, you may be the genius in the room. I think we're going to happily have someone else assume the risk of housing us for at least a few more years, and I suggested to my DH recently that, before we buy a place (if at all), we should take a sabbatical and just travel for a couple months (or as long as our employers would let us be gone). He LOVED the idea, and said, "hey, if we could do that every few years, I'd be fine never owning a house."

As for your son, introduce him to a magical place where you can ride your bike outside, use all the play equipment of your dreams, and never once have to mow the lawn or shovel snow! I call it THE PARK.

P.S. Lots of older/retired people don't want to be taking care of a house when they're up there in years, they want the freedom from house maintenance, and so many of them end up downsizing into apartments or neighborhoods of houses where somebody else fusses when the roof needs replacing and the snow piles up.

MandalayVA

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #2 on: October 14, 2015, 11:17:52 AM »
I don't see anything wrong with renting long term, especially in Northern Virginia where real estate prices are completely ridiculous.  When Mr. Mandalay and I retire, we're selling our (paid-off) condo and becoming renters because neither of us are DIYers.  I'd wish we'd done that in the beginning because it's NICE to have others put in the hard work.

Mr Money Mutton Chops

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #3 on: October 14, 2015, 11:18:35 AM »
Now for the cons - the stigma of not owning your own home (even my boy has asked why most of the kids on his bus live in a "real" house and we don't! haha) - is this just something I'm being paranoid about or is it a real thing?  Also, never really having our own outdoor space, garage, basement for kids, etc.; not enough room for guests; never having a paid-off house (and the financial flexibility/security that comes with that, especially when we're older/retired)...what else?

Well, you may be asking the wrong group, because in general, I think Mustachians kinda don't give a crap about what people think of them. Honestly, you should probably try to care less about what other people think, in general. It will lead to more happiness and freedom. :)


As I was writing my post, you put that there.... You beat me to it by a second! And honestly, I'm almost certain most people on the forum wouldn't really care, nor do I think you should. If it works for you, then rent. If you want to buy, buy. It's your life, live it as you think works.

frugaliknowit

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #4 on: October 14, 2015, 11:19:54 AM »
The only thing potentially "wrong" is that over time, the (seemingly?) small rental rate increases over time compound, possibly making home ownership more cost efficient in the long run.

If you take $1,000 with 3% increases, in 10 years your rent is $1343.

charis

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #5 on: October 14, 2015, 11:26:03 AM »
Isn't it pretty common to rent as oppose to buy in a very HCOL area (NYC, etc)?  I would think there would be little "stigma" in that environment.  No one around on this forum would judge you, but I don't think you are being paranoid per se.  Where I live housing is so inexpensive that I think there is an assumption that if you have a family and plan to stay in town indefinitely, you would buy a house unless you aren't doing well financially.   I think that could be cleared up or explained away pretty quickly if you felt the need ("we don't want the responsibility of homeownership," "we want to be free to take a job offer in another area," etc).
« Last Edit: October 14, 2015, 12:13:03 PM by jezebel »

rubybeth

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #6 on: October 14, 2015, 11:32:23 AM »
The only thing potentially "wrong" is that over time, the (seemingly?) small rental rate increases over time compound, possibly making home ownership more cost efficient in the long run.

If you take $1,000 with 3% increases, in 10 years your rent is $1343.

Right, but a calculator like Michael Bluejay's allows for you to factor in rental increases. For example, right now, my rent is low enough, that even with annual increases of 1-2%, I still come out ahead on renting vs. buying: http://michaelbluejay.com/house/rentvsbuy.html By like $500,000.
« Last Edit: October 14, 2015, 11:41:25 AM by rubybeth »

rubybeth

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #7 on: October 14, 2015, 11:40:28 AM »
One other thing: this same apartment may not suit your needs for your entire life, but with renting, you have the flexibility to move anytime you want. Want to be in a better school district? Change jobs and want to be closer to work? Son grows and you want more space? Son moves out and you want less space? Etc. etc. With renting, you have the option to reassess every time you go to re-sign the annual lease. You can run the rent vs. buy calculator every year, and keep saving/investing the difference until you have at least a 20% down payment. By the time you have $80,000 saved, you may reassess your dream of owning a home. I know if I had a spare $80,000, I would think long and hard about sinking it into a $400,000 house.

Fishindude

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #8 on: October 14, 2015, 11:42:56 AM »
I would bet you will come out ahead in the long run.
I've got a paid off house, but factor in that I put a new roof on it, roofed the garage, painted the exterior, etc. all this year.  It certainly isn't free, and not really even cheap.
No real estate taxes if you rent either.

lizzzi

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #9 on: October 14, 2015, 11:52:43 AM »
There's nothing wrong with renting forever. It depends on a lot of factors, and I would not give a flying fig what anybody else may or may not think...do what works for you. I am living in a very LCOL area right now, in a pleasant little mortgage-free house. I love it here, but the incessant maintenance drives me crazy, and is in no way cheap.  If I move back to my former HCOL area--and I'm in major-decision-mode about this...I will definitely rent. (NY state, approx. 2 hrs. from Manhattan.) If you love, love, love it where you are, doesn't that kind of say it all? Just live there...and enjoy. And it sounds (to me anyway) like you do have room for a second child if you want.   

monkeytree

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #10 on: October 14, 2015, 12:03:05 PM »
I love that there's no stigma here! You all are making this look more and more appealing! Yes, once we actually have $80k saved up, I'm not sure I'd want to sink it into a house either.

It just makes me wonder then, with all the baggage/headache that comes with homeownership, why do so many (most?) people buy? I agree that being in a HCOL makes renting a bit more understandable to rent, but it seems like most, if not all, of our married friends (and a good chunk of single friends) own around here. And it also seems most MMM families here own their homes too as evidenced by the numerous posts on this forum about down payments, mortgages, financing, etc.

Also, I did forget to mention that we DO have a park, literally 2 min from our building, with a trail, a playground, and basketball and tennis courts. So I guess the outdoor space issue really isn't an issue.


HazelStone

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #11 on: October 14, 2015, 12:04:37 PM »
Greetings from the Maryland side! Similar HCOL... when my husband and I discussed getting a house, the main drivers were 1) wanting our own walls/yard and 2) concern that with lots of people (supposedly) piling into the region's military bases, that housing prices would shoot up. Well, we were half right; the value of our home hasn't shot up, but rents sure have. Friends of ours rented a tiny (650 sqft?) 1 bedroom apartment at around $1250/month. Within a couple of years it shot up to $1600/month and the property management really stunk. That was around what our monthly payments were for our 3 bedroom single-family cost after tax write-offs. On the other hand, we replaced our HVAC system and the major appliances. The maintenance stinks at times, but I spent a lot of time in Rental Hell and am on the whole glad to be out of it.

If you like your neighborhood and your neighbors actually let you sleep at night, renting's a reasonable thing to do. Even better if there is a significant cash flow savings to renting. Not everyone wants to have a garden. If you really want/need more tax breaks, throw extra money into your 401k (assuming you aren't maxing it out already).


Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #12 on: October 14, 2015, 12:05:06 PM »
For a small family whose members are a combination of busy, lazy, and totally inept at house upkeep-related activities living in a HCOL region where a decent house in a good school district would start around 300-400k - would there be anything wrong with renting forever?? If you met a family like this, what would you think? Would you start judging? Because I think I would....

No, there's absolutely nothing wrong with renting forever. There are some advantages to owning your own home, but from a purely economic perspective renting is usually better. You need to sit down and run the numbers: How much will it really cost you to own a $400K home? Mortgage payments? Maintenance? Insurance? Time? Stress? If you take the difference between what it would cost you to own your own home and what you're paying in rent and invest that money in index funds, most likely you will be richer at the end of the typical 15-30 year mortgage period than families that bought homes.

Jim Collins has a good post on why a house is a lousy investment and how to evaluate whether buying or renting would be best in your situation.

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #13 on: October 14, 2015, 12:16:20 PM »
Here's another post from Jim Collins' blog that gives more detail on how to run the numbers to see whether buying or renting would be best in your situation.

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #14 on: October 14, 2015, 12:21:09 PM »
If you haven't read it yet, you could also check out this recent MMM post which might help you to decide whether renting or owning a home would be more appropriate in your situation.

catccc

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #15 on: October 14, 2015, 12:22:23 PM »
My kids are 4 & 7 and our NW is just north of 600K.  And DH nor I have ever owned a home.  I do feel like there is a stigma around it with the general public, but I can rattle off a lot of advantages to renting if anyone asked why we haven't bought a house.  And I know a lot of homeowners that are in less desirable financial shape than we are.  A good friend of mine bought a TH, bought a SFH, landlorded the TH, kicked in some serious bucks to sell TH, only to get divorced and sell the SFH to liquidate and divide the equity, to be a renter again.  I'm not saying it's bad that she's renting again, I guess I'm saying "what did buying get her?"  People mistakenly think it's some holy grail of success.  Heck, even I want it sometimes in that way, but it's not always the best choice.

I am a little tired of our place, which is causing me to want to buy, but the rent is a good deal compared to buying and other rentals, so we'll just stick with it for now.

AZDude

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #16 on: October 14, 2015, 12:29:36 PM »
Nothing at all wrong with renting if the housing prices are that expensive. In fact, lots of pros. Lawn upkeep. Cost certainty. You often get amenities like a pool/spa without the hassle.

Thinkum

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #17 on: October 14, 2015, 12:49:32 PM »
As many have said, very few here will think renting forever is dumb. There are many reasons for renting or owning, it is a very personal decision. While renting could make more financial sense, do not forget, as many seem to, the cost of moving and putting down a deposit. The bigger a household, the more expensive and full of hassle it is to move. Each decision has its pros and cons and though it may seem that renting is overall the cheaper option, make sure to take into account all costs.

lizzzi

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #18 on: October 14, 2015, 12:56:30 PM »
To answer OP's question about why owners own:  For me, from an early age, I just wanted to own a house and land.It seemed to spell security and success. Like Lucy in Peanuts, I would half-joke, "I want real estate." I had visions of "moving up" from my working-class background...having a big place with fields and flocks, with husband and kids, with lots of friends and family in and out...liked the idea of landscaping and growing a few vegetables, putting in some fruit trees, painting the house purple if I so desired...and to some extent, I did achieve that and live like that. (Two horses on seven acres, in-ground pool, two kids, 1,000 relatives, three cats.) I guess over the years, especially following the tragic disability of one DD, I've come to realize that big properties are a lot of work and a lot of expense...I've paid sky high taxes for deer thickets and crabgrass...with horses (which I love)  I've paid huge vet and feed bills...I've become much more minimalist over the years, and believe that it's not the kind of house you have...it's the kind of home you have. Personally, I'd work on creating a warm, loving rental apartment filled with light and laughter...with the relaxation and freedom that comes from being totally financially comfortable...a welcoming place for friends and family (without having to have a guest room--use a motel)...and if you want the color purple in your apartment...have it in your couch pillows...not painted onto the walls.Maybe you can put some pretty plants on a terrace or outside the front door for a mini green space.  I do get it that neighbors can be noisy, landlords can be poor managers, and that not all apartments are well-maintained. But you can always move. You have more freedom and flexibility. In terms of pets, a cat or small dog seems to be fairly easy to have in an apartment. And living near an outdoor recreational space can give so much pleasure without actually having to own it and maintain it. And as someone said above, it is easier to shut the door and leave if you want to take a trip. These are just some of my thoughts...there is really no one-size-fits-all answer. But if you stay in a rental and save for a house down payment, you will be in a good position to make the switch if you do decide to buy. Sounds like you are in a good life situation all the way around.

DD is in a beautiful Section 8 apartment, and while she will never "move up" or have a house, her apartment is a happy, homey place. She is a good advertisement for apartment life.

rockstache

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #19 on: October 14, 2015, 12:58:36 PM »
Another couple of renters here. We have absolutely no desire to assume the responsibility and the inflexibility of buying a home, nor do I want my net worth tied up in such an illiquid form. Maybe someday we will find ourselves in a position where we want to buy, but it won't be anytime soon. As far as what other people think...it's a complete non-issue, I couldn't care less.

charis

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #20 on: October 14, 2015, 01:16:20 PM »
I vastly prefer owning to renting (8 years).  In my area, our full monthly payment, including escrow, is less than it would cost to rent a similar house.  We bought it at the end of 2009 and have a good amount equity built up at this point.  I have no interest in dealing with landlords and the possibility of having to move when the lease ends.  I like having a HELOC in case of an emergency.  It adds stability to my life that I didn't feel while renting and we have pets.  And most importantly, my H is very knowledgeable handy around the house. 

monkeytree

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #21 on: October 14, 2015, 01:26:35 PM »
I, too, had always dreamed of owning a home (even up until a few years ago), it was always an unspoken goal - and yes, as lizzzi mentioned, it represented security and success. But over the past few years, my mindset has been changing. I think the realities of work, childcare, and even discovering MMM, has convinced us  that while we may want some of the enjoyable aspects of owning, the maintenance (and possibly financial issues) would stress us out a lot. And I'm not sure if the benefits would outweigh that stress. I guess my DH and I are pretty convinced, and it makes sense for us, but it's still hard to break from the idea that part of the "American dream" means owning your own home.

I appreciate all the feedback - it's definitely encouraging to see that we're not the only ones thinking this way. We aren't going anywhere for at least the next 3 or 4 years, but will definitely think long and hard before we make any big moves. It also helps that our apt building was originally built as a condo so the walls are concrete - so we barely hear a thing. And I guess the lack of space means more of a reason not to invite my in-laws over! (don't tell dh I said that!) But seriously, I know someone who wanted to go back to renting to prevent the in-laws from moving in with them!

MgoSam

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #22 on: October 14, 2015, 01:30:01 PM »
Everyone's different. I think it can make a lot of financial sense to rent. I will say that if you have kids or a family, owning might make more sense (I'm not a parent) as having a permanent base will help provide some stability.

Also, rents tend to go up over time, and by buying your mortgage is locked in place, which is nice.

Also, as a new home owner, I am starting to understand how great it can feel to own a home. Thankfully, I don't believe my place requires a significant amount of work (townhouse), but owning anything does come with a certain amount of stress.

irishbear99

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #23 on: October 14, 2015, 01:32:50 PM »
The hubs and I were renters for the first 15ish years of our marriage. Five years ago we moved to a different state and decided to buy a house. I thought home ownership was the be-all, end-all. I was wrong. It was a LOT of work. When stuff broke, if we didn't fix it it didn't get fixed. And it seemed like stuff was ALWAYS breaking. Even just the upkeep, yard maintenance, etc, became too much effort.

We sold the house this summer when we up and moved to another state again, and we decided to rent. In the overall scheme of things, buying that house worked out really well because it was in a great location and market, and we made an excellent amount of money off the sale considering we only owned it for 4 years. But we've decided to continue renting for now since we don't know whether we'll stay where we are long-term (we tend to get antsy and move every 4-6 years), and because it's nice to not have the hassle. Maybe someday we'll buy again, but in the meantime we'll rent for as long as it makes sense.

Mr Money Mutton Chops

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #24 on: October 14, 2015, 01:36:26 PM »

But seriously, I know someone who wanted to go back to renting to prevent the in-laws from moving in with them!


That may have just convinced me to never buy a house.

catccc

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #25 on: October 14, 2015, 01:40:29 PM »

Also, rents tend to go up over time, and by buying your mortgage is locked in place, which is nice.


I had a friend tell me that her mortgage got passed around like a hot potato, something they didn't really have control over, and the payment did fluctuate because of the changes.  I've never had a mortgage, and IDK how common this is, but it was a surprise to me!

2Birds1Stone

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #26 on: October 14, 2015, 01:47:16 PM »
I plan on renting for life, unless some drastic housing market crash happens and I have amassed a small fortune by then.

Mr Money Mutton Chops

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #27 on: October 14, 2015, 01:55:10 PM »

Also, rents tend to go up over time, and by buying your mortgage is locked in place, which is nice.


I had a friend tell me that her mortgage got passed around like a hot potato, something they didn't really have control over, and the payment did fluctuate because of the changes.  I've never had a mortgage, and IDK how common this is, but it was a surprise to me!
It depends on the country. In Canada at least, this seems like a common occurrence from what I've heard.

Axecleaver

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #28 on: October 14, 2015, 01:59:02 PM »
There's nothing wrong with renting, especially in HCOL NoVa. I lived in the NoVa area for ten years, sold after the housing crash and still made $120k on the SFH we lived in. We got lucky, home prices now are very high and probably will not support any additional run up. We rented for a year prior to buying to figure out where we wanted to be, bought on the way up in 2000, and got out in 2010 after the crash. If we had sold at the peak, we would have made 400k, but I feel lucky to have gotten any profit at all.

Our daughter just went to college, we sold our home here in NY and are happy to rent for now. We have gone back and forth on whether we want to own again. Primarily this centers around risk: property taxes in NY are the worst in the nation and the property tax cap expires this year. With a FIRE date in 2022, we probably won't be here forever. So, we are waiting to see what happens and how we feel. Good news is that as renters, we can change our minds if we want without it costing us thousands of dollars.

Renting again after owning for 20 years gives me a bit of a different perspective.

Advantages of owning:
* You decide how to manage the property. Although you will be subject to HOA's in NoVa, and some of them are awful to deal with.
* it's OK to invest in nice appliances, or do improvements like granite or energy-efficient upgrades (solar). Paint a room fuschia, if you want.
* Much easier to have pets.
* Interest rates at historic lows.

Advantages of renting:
* Much lower risk. Bad neighbor? Move at the end of your lease. If a bad neighbor moves next door to your house, you'll never sell it. 
* Lower exposure to price volatility (you still pay it in the rents, eventually, so it's not zero). So much is outside your control as a homeowner, property taxes, special assessments, someone suing your county, etc. not to mention leaky roofs and such.
* Change your living area as your family needs change, with low transaction costs
* No maintenance hassles or expense.
* More free time: no yard maintenance, home maintenance
* Job change? No problem.

Retire-Canada

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #29 on: October 14, 2015, 01:59:34 PM »

We're renting a somewhat pricey (but not too crazy for this area) 2-br + den apt (~1300 sf) which is in a great location (northern VA), with great schools and community, easy access to public transportation, walkable to a lot of places (so we're hardly ever using our paid off car - we fill up maybe once or twice a month), the management company is awesome about maintenance/responsiveness, grocery store right across the street, gym in building, etc. So basically we've been here a few months but have really, really enjoyed being here. My son absolutely loves the school (and so do we).

Now for the cons - the stigma of not owning your own home (even my boy has asked why most of the kids on his bus live in a "real" house and we don't! haha) - is this just something I'm being paranoid about or is it a real thing?  Also, never really having our own outdoor space, garage, basement for kids, etc.; not enough room for guests; never having a paid-off house (and the financial flexibility/security that comes with that, especially when we're older/retired)...what else?

I moved to a new HCOL area and wanted to rent, but couldn't find anything suitable [cat, needed garage and an office to work from home, didn't want top share a house with other renters or landlord] so I ended up buying.

~$420K house with $40K down. My mortgage payments were ~$1.5K/month including property taxes [bumped them up to $1.75K/month to reduce term of mortgage]. $250/month for utilities, insurance and maintenance.  So I end up spending ~$24K/yr to own the house. I get ~$9K/yr equity [will be more now that I have bumped payments up]. So my cost per year is ~$15K/yr assuming house prices track inflation.

It would cost ~$2K/month to rent the same space.

So although I was a reluctant house buyer once I had a few years of data to look at the cost to own is not bad.

Ultimately I would build yourself a spreadsheet and  work the number for your own situation.

As a long term renter my annual increases were a lot more than 1% to 2% so confirm that those estimates are realistic when you work out your numbers.

To your second point about social stigmas you have to decide if you are going to be bothered by what others think. We live in a crappy house compared to most of our friends. Every month when I am investing my savings I am glad to be living well below my income. Financial freedom is more important to me than what other people think.

mm1970

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #30 on: October 14, 2015, 02:03:01 PM »
I don't think there is anything wrong with renting forever.  I think that people are more mobile these days, and renting makes it easier.

Honestly, I live in an expensive area (Santa Barbara) - though we've considered NoVa.

We had some seriously bad luck in renting here.  Husband's first rental (1BR apt with appliances from the 60's) was great.  We made the mistake of upgrading to a 2 BR when we married and I moved out, because we had 2x the stuff.

That was all well and good until the landlords raised the rent $330 a month (from $995 to $1325).  They did this right before school started, so the rental market was tight.  We ended up in a 1BR condo for $950 a month.  (Note: this is the late 90's).  9 months later the owner decides to sell.  Ugh.  So we end up in student housing, that's frugal!  But have to move a couple of years later when he graduated.

We ended up renting a duplex, and then after a couple of years, buying a house.  In 2004.  Yes, our house is still worth less than we paid for it.  After aggressively paying down the mortgage and refinancing, FINALLY we can say that our mortgage + property tax would equal rent on our house, about $3000 (for 1100 square feet).  But it will still be decades before we'd be even on the money we've thrown at it on mortgage, prop tax, maintenance.  A quick calculation a few months ago came up at about half a million lost.  It would have been way better to rent.  (I'm glad I own my home.  I like it.  Renting in our area is tight, and it can be super stressful to find a rental in your chosen school district, which becomes important once your kids are IN school.  And renting our house in a better school district would be $4000 a month, easy.)

I know plenty of people who rent, because a starter home is still $750k here.  Renting is normal.
« Last Edit: October 14, 2015, 02:06:54 PM by mm1970 »

monkeytree

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #31 on: October 14, 2015, 02:10:17 PM »

~$420K house with $40K down. My mortgage payments were ~$1.5K/month including property taxes [bumped them up to $1.75K/month to reduce term of mortgage]. $250/month for utilities, insurance and maintenance.  So I end up spending ~$24K/yr to own the house. I get ~$9K/yr equity [will be more now that I have bumped payments up]. So my cost per year is ~$15K/yr assuming house prices track inflation.


Your mortgage payments seem awfully low for a $380k mortgage (with PMI, I assume?)...am I missing something? Most of the calculators I've used have shown closer to $2000-$2500/month for that price range, which is more than what our rent is.

mm1970

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #32 on: October 14, 2015, 02:16:52 PM »

~$420K house with $40K down. My mortgage payments were ~$1.5K/month including property taxes [bumped them up to $1.75K/month to reduce term of mortgage]. $250/month for utilities, insurance and maintenance.  So I end up spending ~$24K/yr to own the house. I get ~$9K/yr equity [will be more now that I have bumped payments up]. So my cost per year is ~$15K/yr assuming house prices track inflation.


Your mortgage payments seem awfully low for a $380k mortgage (with PMI, I assume?)...am I missing something? Most of the calculators I've used have shown closer to $2000-$2500/month for that price range, which is more than what our rent is.
Depends on his interest rate (when did he buy the house?)
Also, don't forget to factor in some tax savings.

Brilliantine

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #33 on: October 14, 2015, 02:38:11 PM »
Well, since we are factoring in some secondary benefits, how about we factor in the opportunity cost of that $40K down payment? After 30 years, with an initial investment of $40,000 in VTSAX, how much would a renter's stash have grown?

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #34 on: October 14, 2015, 02:41:10 PM »
I moved to a new HCOL area and wanted to rent, but couldn't find anything suitable [cat, needed garage and an office to work from home, didn't want top share a house with other renters or landlord] so I ended up buying.

~$420K house with $40K down. My mortgage payments were ~$1.5K/month including property taxes [bumped them up to $1.75K/month to reduce term of mortgage]. $250/month for utilities, insurance and maintenance.  So I end up spending ~$24K/yr to own the house. I get ~$9K/yr equity [will be more now that I have bumped payments up]. So my cost per year is ~$15K/yr assuming house prices track inflation.

It would cost ~$2K/month to rent the same space.

Wow, I'd like to get a deal like that on a mortgage! <10% down and it must be a super low interest rate. How did you manage to swing that one?

Retire-Canada

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #35 on: October 14, 2015, 03:12:57 PM »
Wow, I'd like to get a deal like that on a mortgage! <10% down and it must be a super low interest rate. How did you manage to swing that one?

I went to a mortgage broker.  I have a great credit score and it's a 5yr variable mortgage. The rate is super low, but interest rates are pretty much rock bottom. I'm up in Canada.

cchrissyy

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #36 on: October 14, 2015, 04:05:26 PM »
I don't think there's a stigma to renting, and in fact don't know the own-rent status of many of my friends, or my kids' friends!

I think your kid's "real house" comment reveals what there is a stigma for - apartments. I guess if you're in an apartment, as posed to condo or townhouse, that your friends would know you rent and  kid would notice that's not "a real house".  But whatever, either the apartment suits you or you can  rent a house next time.


I like owning because it locks in your monthly housing price for 15-30 years, feeling cheaper over time thanks to inflation, and then gets you however many years after that at just taxes and insurance.  But the big downsides are maintenance costs and lack of mobility when it comes to needing something bigger or smaller or wanting to switch towns.

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #37 on: October 14, 2015, 06:34:03 PM »
Wow, I'd like to get a deal like that on a mortgage! <10% down and it must be a super low interest rate. How did you manage to swing that one?

I went to a mortgage broker.  I have a great credit score and it's a 5yr variable mortgage. The rate is super low, but interest rates are pretty much rock bottom. I'm up in Canada.

That makes sense now. I figured it must be some sort of an interest-only or 40 year mortgage or something other than the norm in the U.S., which is a 30 year fixed rate. As long as interest rates don't increase dramatically during the next 5 years, it sounds like you've got a good deal.

SwordGuy

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #38 on: October 14, 2015, 07:21:51 PM »
No real estate taxes if you rent either.

The only time renters don't pay the landlord's real estate taxes is when the property is vacant.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #39 on: October 14, 2015, 07:58:13 PM »
Depending on the kids ages and personalities, they might just be curious. Giving your kid answers to the questions might put them all at ease.

"My parents work long hours and are kinda clumsy, so we live in an apartment so they don't have to waste time figuring out how to fix stuff"

If your kid is dealing with mean girls, I don't know how to handle it :)

okits

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #40 on: October 14, 2015, 09:39:13 PM »
In Canada the ownership rate is about 70%, so DH and I are really bucking the trend by planning to rent indefinitely.

There is definitely a stigma to being a renter, like you aren't grown up or successful yet.  I anticipate that my toddler will ask questions when she's older (things that may sting a little, like "why don't we have a real home?"), but if I'm going to teach her financial literacy and critical thinking, evaluating situations against conventional wisdom needs to happen.

You can show off your hardwood floors and granite countertops and have friends and family ooh and aah over them.  You can publicly beam about your pride of ownership.  Without really pissing some people off (at the very least), you cannot show off your fat investment portfolio and gush about your pride of ownership of that. Socially very unacceptable and you will receive very little oohing and aahing.

There's a judgment that you're not doing right by your kids if you don't have a backyard for them and one bedroom per kidlet. The attitude is so entrenched it is ridiculous.

I do care, to some extent, what people think of us. For most, an easily-understood explanation (great deal on rent, DH's job may require we relocate, houses are so expensive) is good enough. If I sense someone is open to the financial argument I might discuss rent vs. own, or excessive risk in concentrating a huge chunk of our NW in one illiquid asset.  It's a screening process for me, too.  If someone thinks less of us for being renters after they learn we've made a thoughtful decision to do so, I've learned something about that person's values or decision-making capacity. 

Keeping shelter costs under control has been a significant factor in our ability to build a stash.  We've been through some stressful life events where 1) having that stash was a big comfort, and 2) not having the stress of paying a mortgage or maintenance on an owned property was a relief (we could not own a similar dwelling for anything near the deal we get on rent.  Locally, real estate prices have detached from rents so it's not an uncommon scenario.)

markbike528CBX

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #41 on: October 14, 2015, 09:46:14 PM »
For 22 years of my adult (real job) life, I rented.
Early, because I despised mowing the lawn ect.
Later,because I had a job that had 1day to one week notice for out of town work that could be up to two months away from home.
As a renter, I could have my mom stop by on a bi-weekly basis to water plants and check the mail.
no hassle, nice place with a pool, central location.

Now married, a house has its strong points, but upkeep/upgrades take their toll.
mortgage ~= rent, which was a strong house buying push.

All the people who insist that " you must buy a house mostly want you to join in their misery.

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #42 on: October 15, 2015, 12:22:15 AM »
In general, I think if you are interested in saving money you are better off buying than renting. 

Look at this way. Most landlords make a profit renting.  Who pays for the profit the landlords make? The renters. So why give the landlords profits when you can make it yourself?

Secondly, there are numerous tax breaks that the government provides to homeowners that long term renters miss out on.  The most obvious is, of course, the deductibility of interest and property taxes.  There is also a variety of other deductions that are available to homeowners but not renters. So for instance I've reduced the cost of electricity (and gasoline since I own an electric vehicle) to about $30/month, the cost of the system was subsidized by the state, and federal governments.

Perhaps most importantly is the $500K, capital gains exclusion.  You got the kids out of the house, and now you can downsize, you can exclude $500K in capital gains, that's a pretty big tax saving.  It is virtually impossible to find anything similar in size or scope outside of being a homeowner.

Now that isn't to say that renting is always the right thing, because it isn't.  Especially if you have career where you can benefit for being more mobile.  But if you think are going to be in a place for at least 5-10 years with the possibility of being there for 20+ I think you are better off buying.

markbrynn

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #43 on: October 15, 2015, 02:18:08 AM »
Quote
The only time renters don't pay the landlord's real estate taxes is when the property is vacant.
This isn't true. Although people like to think so, the rent charged is set by the rental market, which is more concerned with supply and demand than how much the landlord pays in property taxes. The landlord would like to pass on all costs (and make a profit) to the renters, but that doesn't automatically happen. It is true that the underlying costs of owning property will be somewhat related to the rental prices, but this is far from an absolute/direct link.

Quote
Look at this way. Most landlords make a profit renting.
I also don't know if this is true. I'm sure there are plenty of landlords who make a profit, but have also heard of plenty who don't (if someone has statistics on this, I would be very interested). People are quite bad at calculating the full cost of ownership (the many, many costs; time put in to manage and maintain; risk of very big expenses; risk of eventual sales price being lower than expected). I'm not saying that people don't make money as landlords (there are examples on these forums), but the idea that renting is bad because all/most landlords are making money is bad advice.

Specific situations where landlord could be making a profit and it's still better to be renting:
1. You don't have time/skill/desire to fix up your own house and you would end up paying someone to do all your maintenance. Landlord does his own, so is better off.

2. You move cities, countries from time to time for a better job or life situation. Landlords make profit off of you, but you spend far less money than buying and selling.

3. Housing market is overpriced/hot/high. For you to buy into that market and possibly exit at a lower level in the future could be disastrous. Landlord is profiting short term (and maybe holds on long enough to sell at the right time), but has a large risk of falling prices in the future.

I'm not against house ownership, but I don't like to see blanket statements (usually somewhat emotionally charged statements) that tell people that renting is a always a bad idea.

patrickza

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #44 on: October 15, 2015, 02:46:50 AM »
Owning even my own property felt like work to me, at one stage I had my property, and two rentals. 'Now I'm a happy renter. Strangely my two rentals felt like less work than my own home!

Never again will I own bricks and mortar and pay the government for the privilege of doing so. Closest I'll come to again is a boat or an RV I live in.

UnleashHell

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #45 on: October 15, 2015, 04:33:20 AM »
I bought my current house two years ago. We have kids and like the school district so were bound by physical location.
Before that we rented - first in an apartment. Couple above us had a dog they only seemed to exercise in the apartment. every night. and liked fighting each other. not a great environment.
after that we rented a house. Rent was a lot more than a mortgage would be. nice house and close to school. We paid the rent. owner didn;t pay the mortgage. house was foreclosed on and we had to move again.

obviously as the owner wasn't paying the rent he also wasn't too hot on doing minor repairs like making sure the hot water worked.


Its not always rainbows and waterfalls.



When the kids are done with school we may rent our place out and travel.

sammybiker

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #46 on: October 15, 2015, 04:43:19 AM »
@OP, is going the multi-family home route any help?  Even in HCOL area, a duplex will greatly help offset the mortgage, provide awesome equity pay down, retirement diversification if you so decide to keep it that long, etc.

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #47 on: October 15, 2015, 04:49:54 AM »
Look at this way. Most landlords make a profit renting. Who pays for the profit the landlords make? The renters. So why give the landlords profits when you can make it yourself?

This may be true in some markets, but it is definitely not true everywhere. In many places real estate prices are so high that its very difficult, if not impossible, for most landlords to actually make a profit.

If you haven't already, please read MMM's recent post comparing renting vs. owning.

Gondolin

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #48 on: October 15, 2015, 07:45:53 AM »
You'll notice that several posters (including OP) have said that they feel or have felt that home ownership was the ultimate sign of success and adulthood. The reason for this is that since the formation of the colonies the "American (or Canadian) dream" has been intrinsically rooted in land ownership. Social mobility meant becoming a landowner - farming was lucrative and owning lands meant you had a real stake in the colony(or kingdom) in a way you could never have back in Europe.

Owning lands = getting rich = greater status

As industrialization occurred, the agrarian lifestyle became less lucrative and less appealing. However, the need to own land persisted - eventually morphing into the idea that owning your own home with two cars and a white picket fence was the ultimate sign that you had "made it". This is the dream your parents and grandparents spent their lives chasing. It was fine for them but, is woefully outdated for the 21st century service economy.

The best thing you can do for your financial future is to give up the definitions of success held by previous generations and redefine it for yourself.

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #49 on: October 15, 2015, 07:50:23 AM »
Look at this way. Most landlords make a profit renting. Who pays for the profit the landlords make? The renters. So why give the landlords profits when you can make it yourself?

This may be true in some markets, but it is definitely not true everywhere. In many places, real estate prices are so high that it's very difficult, if not impossible, for most landlords to actually make a profit.

If you haven't already, please read MMM's recent post comparing renting vs. owning.

I didn't say everywhere, I said most meaning a majority.  Are you saying that most landlords are stupid and lose money, and year after year subsidize the smart renters?  Do you have any data?

Regarding MMM post on Toronto rents, there are definitely some markets where owning is less favorable.  That said I've spent most of my life living in High COL places (California, Hawaii), where it has been very difficult to purchase properties that are cash-flow positive.  Yet somehow lots of people make money in crazy expensive real estate markets (including Toronto). They do this because properties appreciate over time, and through the use of leverage that increases their returns.  Certainly as we found out in 2007/2008 real estate can go down and you can lose money both as a homeowner and a renter. However, over time real estate does appreciate.

The reason I pointed out that most landlords make money was to point out even though there are many distinct advantages for home ownership, primarily tax advantages but also lower interest rates on mortgages, people make money owning homes and renting them out.  So logically the lower cost of owning a home for an individual should widen the profits vs a landlord.

Finally, it is worth considering this factoid.  In Stanley's book The Millionaire Next Door he found that 97% of millionaires own their own home. If you think that emulating the habits of the Millionaire Next Door is worthwhile than I suggest that buying a home is smart.

If people want to convince themselves that there is no financial advantage to owning vs renting, and retiring early is just as easy if you've rented your whole life as opposed to owned feel free. I suspect that there is precious little data to support the position.