Author Topic: What's wrong with renting forever?: Stigma of non-home ownership  (Read 41422 times)

FLBiker

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #50 on: October 15, 2015, 08:51:43 AM »
Happy to see the diversity of opinion here.  My wife and I bought our first house 5 years ago (good timing).  It's ~1800 sqft, we paid $143K.  Nice neighborhood, so-so school (but they recently made it IB and my daughter is 6 mos so we'll see).  We're both a little handy, but there's definitely been a learning curve w/ DIY stuff.  And there have been times when I've wondered if we wouldn't be better off (psychologically) renting.  Financially, I think we're definitely coming out ahead -- according to Zillow our house is now $175K, and our mortgage is basically what we were paying for rent for a 1 BR apt 5 years ago.  At the same time, I find home ownership much more stressful and time consuming than renting, and I'm not sure that this is worth it to me.  Of course, over the years the stress level has come down a bit.

I don't think we'd move into a rental in our current situation, but if we were to relocate, we'd definitely rent initially and I think we'd consider it longer term.

Gondolin

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #51 on: October 15, 2015, 08:56:28 AM »
Quote
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.

This factoid is useless without also knowing the sequence of events and how those millionaires made their money. Did owning a home help make them rich? Or did they get rich and then buy a home? Emulating the wealthy before you ARE wealthy is the easiest way to make sure you never become wealthy.

Warren Buffett and Captain Sparklez are both rich men who own homes but, implying that their home ownership aided their success is quite misleading.

monkeytree

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #52 on: October 15, 2015, 10:13:08 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?

Yes, lots of great discussion, but comparing landlords to individuals may be too simplistic. I assume "most" landlords also have enough money to comfortably invest in rental properties so they're probably in a better position to profit as well. If you're like us, you'd be stretching your finances the first few years to save enough and then incur the initial move-related expenses.

In our situation specifically, it would be years before we could come up with a decent down payment, and in our area, I assume the houses will just keep getting more expensive. Assuming we can buy in 4 years, we'd be sinking a good chunk (if not all) of our savings (minus retirement) into the house, and using the extra monthly cash flow (if we'd been renting) to contribute to the mortgage plus misc/surprise expenses.... not leaving us a ton of cushion for extra savings. If we continued to rent, we could probably bank about $3k/month in savings/investment, but probably only a third of that if we owned. By the time we saved up $80k, 100k, or even 200k, yes, we'd be in a better position to buy, but as someone mentioned before, would it be worth the missed opportunity cost of investing that chunk of change?

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.

Love this!

It seems like even here, a lot of owners who love their homes and don't necessarily regret that choice at least question whether it made sense to invest so much (financially or otherwise) in them. And it's interesting to see how even these owners would seriously considering renting as their next housing option.

This is a bit like the "to have or not have kids" dilemma....there are clear joys of raising children, but very real sacrifices and commitment parents make as well. Is it worth it? Some say yes, some no. Some make the decision by choice, others are forced to choose based on family, health circumstances. There is also some stigma associated with not having children (or not having more than one, even)!

webcat86

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #53 on: October 15, 2015, 12:22:20 PM »
Well it's up to you but I don't understand some of the pro-rent arguments.

Yes, owning may be more expensive over time, but once the mortgage is clear you have the security. I wouldn't want to be renting in retirement.

And job losses etc are not good reasons. You can be evicted from a rental for not paying just as you can with an owned property. As for 2008 not being a good time - this would be when prices plummeted and buyers bought at vastly reduced prices that have since increased in many areas?  Bubbles have happened in the past and will happen again, 2008 was bad but shouldn't be much of a deterrent, especially in the direct aftermath.

Personally I do agree there are pros and cons to each. I've rented and now own and prefer it but there is more concern about things going wrong. But, the people I know who are late 30s or older seem to regret not buying. I work with a 41 year old who wished he had bought and doesn't know how he will now.

And just so people know, homeowners can travel too. In fact, it's easier - I had clauses in my rental contract about not leaving the place empty for too long, and owners can even rent it out if they go away.

I'm pretty much of the opinion that renting has advantages, but many of us will one day wake up and wish we had the security and comfort of our own home. No worry of a rent increase, no worry of a landlord selling and kicking you out, or things not getting repaired 

One last point on recessions - if you rent and your landlord defaults, bye bye home. If you own, there are options. A reduced value only matters if you try and sell in that time. If you have good history of payments many lenders will allow a payment holiday, especially if you have a lot of equity or have overpaid. Or if you have good savings like many here, you could afford the mortgage even if the worst happened and you lost the job for a while. The point being, there is a perceived idea of freedom with renting, but I find it far riskier and with far fewer choices

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #54 on: October 15, 2015, 01:30:44 PM »
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?

My argument is that in many markets around the world, if a landlord takes into account ALL of the costs of owning a property including the opportunity cost of the funds he has tied up in the home(s), it would be nearly impossible to make a profit from renting out residential real estate, yet landlords do it anyway. I wonder why?

Some landlords may have motivations other than pure investment. Many landlords are not really in the business of renting out properties to make a living. They just do it as a side thing, or they're renting out their former residence while they wait for real estate prices to come back up again before selling. It's impossible to know all of the reasons why a landlord would choose to lose money on a property.

Since information on whether landlords in a given area are making a profit on their investments is private, it would be difficult to present data to back up my claim that renting out residential real estate is not a profitable business in many areas. Can you present any data that prove your claim that "most" landlords are making profits on renting out real estate? It seems like an impossible hurdle to put up in order to accept that real estate investment can be profitable in some areas and not so much in others.

The best we can do is reverse engineer the data. We can look at purchase prices of residential real estate in a given market, add in all known costs of real estate ownership, and then subtract out the gross rents that are attainable in that market. If you do this, you will see that some markets offer many profitable opportunities for landlords and others do not.

If you're unwilling to even consider questioning your (apparently) cherished, long-held beliefs regarding the universal profitability of residential real estate, that's fine with me. I realize it's like a religion for many people and any challenge to their beliefs is taken as a personal insult. If you'd like to learn more, why not check out the articles below. You might learn something. :)

Why your house is a terrible investment (jlcollinsnh)

Renters for Life (Go Curry Cracker)

terran

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #55 on: October 15, 2015, 01:50:39 PM »
My argument is that in many markets around the world, if a landlord takes into account ALL of the costs of owning a property including the opportunity cost of the funds he has tied up in the home(s), it would be nearly impossible to make a profit from renting out residential real estate, yet landlords do it anyway. I wonder why?

I think a big part of it is that unlike just about any other investment it's possible for a handy person to add a lot of value by doing some work. As a straight passive investment I tend to agree with you, but I suspect that for handy people who don't make real estate a passive investment, they'll get a much better return than investing in index funds as long as you ignore the value of their labor. So they might not have reached financial independence in the sense of "never have to work again," but they have reached it in the sense of being self employed with a relatively steady business that they can always sell in a well developed market unlike more specialized businesses.

It's not for me, although I probably could do it successfully, but I can see the appeal if you're looking for something that you can have a little more active hand in the success of than an index fund.

I didn't really mean to add this part, but as I wrote the above it occurred to me that the same argument can probably be extended to owner occupied real estate. If you're handy and willing to ignore the value of your labor there's a pretty good chance you'll come out ahead financially in any market that's not currently overvalued and fueled by speculation. I still wouldn't consider a home an investment, but as an alternative to rent you get more flexibility in the amount of work you're willing to put into keeping things running instead of paying money. Not saying one way is better than the other, it's just a choice that you need to make.

For us we own now, but after this experience probably won't again until we retire, if then.

mm1970

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #56 on: October 15, 2015, 02:08:28 PM »
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.

I think as always, this depends a lot on where you live and what you do.

In a reasonable COL area, if you have a decent job, I'd imagine that it's better to buy short term and long term.

But there are always the "other places" and "other things".

2007/2008 may be an anomaly, but we got caught in that anomaly.  11 years later and our house is still worth less than we paid for it.  Mortgage, prop tax is about $3000 a month.  Most of that time, renting the same house would have been about $2k per month.  Yes we have tax savings BUT we are hit with the AMT now, so it's not the full amount.  $1k a month x 12 months x 11 years.

Long term, it may work out.  As in, 20-30 years. 

But how many people have the same job in the same place for 20 years?  Probably a lot of people, but not in my industry.  I know many people who own homes elsewhere, that they rent out at a loss (or break even) because they could not sell their other house.  Especially in my HCOL area, rents are outrageous but anyone who bought their house in the last 11 years (except for maybe 2009/2010) is barely breaking even.

So why be a landlord?  Well, obviously, it's different in different locations and it can make money.  You can get positive cash flow if you can put enough down.  And some people get into landlording gradually.  My boss bought a condo. Lived in it.  Bought another condo (foreclosure) during the downturn.  Rents it out.  Bought a house a couple of years ago and rents the first condo.  So he's neutral on the first condo, but with prop tax loses a couple hundred a month.  He's cash flow positive on the second condo.  Note that he has NO 401k, all of their investment is in the real estate.
(So kind of drives me crazy when renters complain about the crazy rents, because it's STILL cheaper than buying.  And of course owners are "gouging renters" - except a lot of them don't break even.  There are landlords who bought their homes for $50k 30 years ago and are making bank on them.  So...???)

In upstate NY, I've never run the numbers - but I've noticed that rent is pretty cheap.  However, prop taxes are high.  Cost to rent a house: $1200 a month, $14,400 a year.  Property taxes if you own that house: $4500 a year.  Mortgage: $5200 a year.  That's $9700 a year if you don't own it outright, before insurance or maintenance.

If you have the type of job where you will move more often, it's generally safer and cheaper to rent.

Zikoris

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #57 on: October 15, 2015, 02:51:20 PM »
We don't intend to ever buy a place, and we could afford to pay somewhere between 50% and 100% of the cost in cash (depending how fancy a place we bought) if we wanted to. It makes zero financial sense to buy in my city when you're capable of ninja-style apartment hunting and routinely pay at the very bottom of the rental scale. We also love the flexibility of being able to move at will, and being able to call someone up and say (politely) "deal with it" when something breaks or leaks or whatever.

I just don't see how you could possibly come out ahead buying a $300,000 condo and having to pay insurance, interest, utilities, maintenance, and condo fees, versus paying $776 for a nice apartment that includes utilities. That's our current situation.

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #58 on: October 15, 2015, 03:27:24 PM »
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?

Yes, lots of great discussion, but comparing landlords to individuals may be too simplistic. I assume "most" landlords also have enough money to comfortably invest in rental properties so they're probably in a better position to profit as well. If you're like us, you'd be stretching your finances the first few years to save enough and then incur the initial move-related expenses.

In our situation specifically, it would be years before we could come up with a decent down payment, and in our area, I assume the houses will just keep getting more expensive. Assuming we can buy in 4 years, we'd be sinking a good chunk (if not all) of our savings (minus retirement) into the house, and using the extra monthly cash flow (if we'd been renting) to contribute to the mortgage plus misc/surprise expenses.... not leaving us a ton of cushion for extra savings. If we continued to rent, we could probably bank about $3k/month in savings/investment, but probably only a third of that if we owned. By the time we saved up $80k, 100k, or even 200k, yes, we'd be in a better position to buy, but as someone mentioned before, would it be worth the missed opportunity cost of investing that chunk of change?



For people living in an HCOL area, it is almost always a financial stretch to buy your first home.  But I'd argue that's a good thing.  I think psychologically it is easier to give up the Starbucks habit when you are desperately saving for a down payment in the next few years than to do so for a retirement many years down the road.

Forced saving early in your life is generally a good thing because it maximizes the power of compound interest.

The average rent in the US is about $1,000/month.  If we expect rent to 3% per years (slower than recent years) than over the next 10 year the rent will be over $1,300 and you will have paid and additional $20K that a homeowner with fixed mortgage wouldn't have paid.  Sure a homeowner will also have some rising expense, but overall cost will rise a much slower rate because the primary cost, interest rate expense, will be declining as the mortgage is paid off.

The median home price in the US is $200,600 so with a 20% down and a 3.5% mortgage the payments will be $964/month.  There will be additional expenses for home ownership (insurance, property tax, etc) but for somebody in the 25% bracket the interest rate deduction will almost certainly be worth more than the additional costs.  Note this isn't exactly a fair comparison because most rental units are apartments which typically aren't as nice as most house.
 
To me, the bottom line is renting is a convenience in the same way that leasing a car, or getting take out is a convenience.   In some cases (e.g. a self-employed professional with more available work than time), it makes financial sense to opt for convenience but generally it doesn't.

It also seldom makes sense to buy unless you intend to stay in the house for at least 3 and more likely 5 to 10 years due to the high transaction cost associated with real estate.

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #59 on: October 15, 2015, 03:54:11 PM »
We don't intend to ever buy a place, and we could afford to pay somewhere between 50% and 100% of the cost in cash (depending how fancy a place we bought) if we wanted to. It makes zero financial sense to buy in my city when you're capable of ninja-style apartment hunting and routinely pay at the very bottom of the rental scale. We also love the flexibility of being able to move at will, and being able to call someone up and say (politely) "deal with it" when something breaks or leaks or whatever.

I just don't see how you could possibly come out ahead buying a $300,000 condo and having to pay insurance, interest, utilities, maintenance, and condo fees, versus paying $776 for a nice apartment that includes utilities. That's our current situation.

It very well may not make sense in your area, depending on the condo fee and other expense. But the mortgage for your Condo would be about $1,440 if you live in a state with fairly high-income taxes the after-tax cost would  probably be under $1,000 month.  Condo fees can be all over the map, and as I've learned the hard way really eat into profits.  Still if the property appreciates at just a tad over 5% a year in 10 years it will be worth $500k, you can take the 200k profits tax-free and retire to lower cost of living place.  Would you have been better off investing the negative cash flow in the market? It is pretty much impossible to say but under the right circumstance even marginal home purchases can and have worked out well. 

Between being single, and not being a DIY type, I am far from the ideal homeowner.  But to me the inconvenience of having to call a plumber are minor compared to having a landlord call and say I'm selling your place be out in 45 days. I guess different strokes.

Zikoris

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #60 on: October 15, 2015, 04:11:47 PM »
We don't intend to ever buy a place, and we could afford to pay somewhere between 50% and 100% of the cost in cash (depending how fancy a place we bought) if we wanted to. It makes zero financial sense to buy in my city when you're capable of ninja-style apartment hunting and routinely pay at the very bottom of the rental scale. We also love the flexibility of being able to move at will, and being able to call someone up and say (politely) "deal with it" when something breaks or leaks or whatever.

I just don't see how you could possibly come out ahead buying a $300,000 condo and having to pay insurance, interest, utilities, maintenance, and condo fees, versus paying $776 for a nice apartment that includes utilities. That's our current situation.

It very well may not make sense in your area, depending on the condo fee and other expense. But the mortgage for your Condo would be about $1,440 if you live in a state with fairly high-income taxes the after-tax cost would  probably be under $1,000 month.  Condo fees can be all over the map, and as I've learned the hard way really eat into profits.  Still if the property appreciates at just a tad over 5% a year in 10 years it will be worth $500k, you can take the 200k profits tax-free and retire to lower cost of living place.  Would you have been better off investing the negative cash flow in the market? It is pretty much impossible to say but under the right circumstance even marginal home purchases can and have worked out well. 

Between being single, and not being a DIY type, I am far from the ideal homeowner.  But to me the inconvenience of having to call a plumber are minor compared to having a landlord call and say I'm selling your place be out in 45 days. I guess different strokes.

Condo fees in Vancouver start at about $200/month and are frequently $300-$400. It's pretty hard to come out ahead at those rates, in addition to utilities, maintenance, mortgage interest, and homeowners insurance.

I've never actually been kicked out of a place in my 11 years of renting, but 45 days seems extremely ample to find a new apartment. I'd wish the landlord well and be on my way. Though I don't actually have a landlord right now, being in a housing co-operative - but I might have one again some day if the rents here get too high.

kite

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #61 on: October 15, 2015, 05:02:56 PM »
It's as individual as marriage.  Not for all.
Great for many, dreadful and financially ruinous for others. 
It also has to be the right one.  Choose the wrong house or spouse and it's not going to turn out well. 
Also as with marriage, there are good reasons and not so good reasons, but near the top of the list of bloody awful reasons is because you care that others will judge you poorly.  That's the sort of notion sets up a disaster.

Nobody thinks about you as much as you think they do. 
« Last Edit: October 16, 2015, 10:07:18 AM by kite »

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #62 on: October 15, 2015, 08:06:06 PM »
We don't intend to ever buy a place, and we could afford to pay somewhere between 50% and 100% of the cost in cash (depending how fancy a place we bought) if we wanted to. It makes zero financial sense to buy in my city when you're capable of ninja-style apartment hunting and routinely pay at the very bottom of the rental scale. We also love the flexibility of being able to move at will, and being able to call someone up and say (politely) "deal with it" when something breaks or leaks or whatever.

I just don't see how you could possibly come out ahead buying a $300,000 condo and having to pay insurance, interest, utilities, maintenance, and condo fees, versus paying $776 for a nice apartment that includes utilities. That's our current situation.


It very well may not make sense in your area, depending on the condo fee and other expense. But the mortgage for your Condo would be about $1,440 if you live in a state with fairly high-income taxes the after-tax cost would  probably be under $1,000 month.  Condo fees can be all over the map, and as I've learned the hard way really eat into profits.  Still if the property appreciates at just a tad over 5% a year in 10 years it will be worth $500k, you can take the 200k profits tax-free and retire to lower cost of living place.  Would you have been better off investing the negative cash flow in the market? It is pretty much impossible to say but under the right circumstance even marginal home purchases can and have worked out well. 

Between being single, and not being a DIY type, I am far from the ideal homeowner.  But to me the inconvenience of having to call a plumber are minor compared to having a landlord call and say I'm selling your place be out in 45 days. I guess different strokes.

Condo fees in Vancouver start at about $200/month and are frequently $300-$400. It's pretty hard to come out ahead at those rates, in addition to utilities, maintenance, mortgage interest, and homeowners insurance.

I've never actually been kicked out of a place in my 11 years of renting, but 45 days seems extremely ample to find a new apartment. I'd wish the landlord well and be on my way. Though I don't actually have a landlord right now, being in a housing co-operative - but I might have one again some day if the rents here get too high.


It is also important to point out that tax laws in Canada and US are very different.  Not being able to deduct mortgage interest in Canada makes a huge difference.  I also don't believe that Canada has a capital gains exclusion.   AFAIK 30 years mortgages are also rare in Canada.  If I was Canadian living in the high cost cities I won't buy either.

Jon_Snow

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #63 on: October 15, 2015, 08:43:12 PM »
I'm in the same city as Zikoris, and our decision to buy in 2002, just before the big run-up in Vancouver real estate was likely one of the best financial decisions we will EVER make in our lifetime. Timing can be everything.

Rosy

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #64 on: October 15, 2015, 10:35:43 PM »
So many insightful and varied responses - great thread.

My DDH was opposed to the idea of ever owning a home - too much trouble - too much responsibility and what a hassle if we ever decided to move.
I never once saw it that way and over the years have come to realize that some people simply don't want a place they can call their own. I think it is psychological, but of course one can find plenty of logical reason to hide behind.
From what I have seen over my lifetime, it is akin to some people never wanting kids - it is OK if you don't want to. It is just one more lifestyle choice - neither good nor bad - and in truth the numbers behind it do not matter.

For me owning a home is something that makes me happy, my place where I can do what I want and live how I want without interference from others.
A garden - thank heavens, better even a nice big property with plenty of privacy.
I love projects and making our place shine and sparkle until it is the best it can be inside and out.
I can tell you without reservation that even though I am an old lady now, it still gives me purpose and pleasure to putter about. I see it as a gift and a blessing, but I am quite aware that houses can be money pits (I inherited one of those:), but I conquered it in the end.

If you are at a point in your life where you simply don't want to be bothered with a house, then it is smart and sensible for you not to go down that road. You can always stash the money for a down payment and then invest it, in case you change your mind. You are not obligated to own a home simply because you have a good income - this is one area where it would be incredibly foolish to give in to peer pressure. No one runs your life but you:)
We lived in a condo association for a while owned by an out of state owner and it was like having the best of both worlds - someone took care of things, while we enjoyed the pool:)

The second I was on my own I aspired to a place of my own, but as long as my husband was alive I knew there would never be a real home for me. So I insisted on places with a big balcony and decent greenery all around or at least nearby - I understood on some level that he seriously did not want a house - he simply did not like the idea of having to take care of routine maintenance and the necessary upkeep and improvements over the years, not even gardening..

I have owned only three homes in my lifetime and I loved them all - the apartments and condo apartments were nice, but it always irked me to give someone else money so I would have a roof over my head for another 30 days - I was always terrified of not having the money to pay next months rent.
Just the indignity of someone entering our apartment to spray or do whatever the landlord required while I was at work drove me insane. It always felt like a violation of my privacy. I hated being subjected to chemicals and I hated not knowing when and if they would raise the rent - would there finally come a point when we couldn't stay in an apartment we liked, because of a rent increase?
I like the idea or illusion to be in control and renters have no control.

Bottomline - there is nothing wrong with renting forever, there are a lot of nice homes, apartments and condos for rent all over the world. Speaking as a former landlord, it is nice to have a renter who will stay on for awhile and reliably fund your real estate investment for you:)
There are pros and cons, but in the end it is your preference that matters.






Zikoris

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #65 on: October 15, 2015, 11:46:54 PM »
I'm in the same city as Zikoris, and our decision to buy in 2002, just before the big run-up in Vancouver real estate was likely one of the best financial decisions we will EVER make in our lifetime. Timing can be everything.

I was 16 in 2002. so yeah, not really an option... :)

Would you have come out ahead if you'd rented a cheap place instead and invested the difference? I'd be curious how the comparison would come out assuming low rent vs whatever you paid for your place.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #66 on: October 16, 2015, 01:56:59 AM »
I bought my place in 98 and for the past 10 years I wish I would have rented instead.  Crap is breaking all over the place.  Water heater, toilet, kitchen sink plumbing, carpet is toast, some tiles are busted.  Yeah, I fixed most of it but it is a giant pain in my ass.  That kind of stuff puts stress on me.  I would rather rent and make that crap the landlords problem.

Part of my RE plan is to sell this place and rent.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #67 on: October 16, 2015, 06:51:01 AM »
Well it's up to you but I don't understand some of the pro-rent arguments.

Yes, owning may be more expensive over time, but once the mortgage is clear you have the security. I wouldn't want to be renting in retirement.

And job losses etc are not good reasons. You can be evicted from a rental for not paying just as you can with an owned property. As for 2008 not being a good time - this would be when prices plummeted and buyers bought at vastly reduced prices that have since increased in many areas?  Bubbles have happened in the past and will happen again, 2008 was bad but shouldn't be much of a deterrent, especially in the direct aftermath.

Personally I do agree there are pros and cons to each. I've rented and now own and prefer it but there is more concern about things going wrong. But, the people I know who are late 30s or older seem to regret not buying. I work with a 41 year old who wished he had bought and doesn't know how he will now.

And just so people know, homeowners can travel too. In fact, it's easier - I had clauses in my rental contract about not leaving the place empty for too long, and owners can even rent it out if they go away.

I'm pretty much of the opinion that renting has advantages, but many of us will one day wake up and wish we had the security and comfort of our own home. No worry of a rent increase, no worry of a landlord selling and kicking you out, or things not getting repaired 

One last point on recessions - if you rent and your landlord defaults, bye bye home. If you own, there are options. A reduced value only matters if you try and sell in that time. If you have good history of payments many lenders will allow a payment holiday, especially if you have a lot of equity or have overpaid. Or if you have good savings like many here, you could afford the mortgage even if the worst happened and you lost the job for a while. The point being, there is a perceived idea of freedom with renting, but I find it far riskier and with far fewer choices

I thought about your post last night, because some of it seem directed at things I was saying. I want to point out a few things in your comments, not to start an argument, but just to highlight the different perspectives and thinking on this.

1) "Well it's up to you"--yes, we all get to make our own choices with various reasons that are personal and unique. :)

2) Security argument--there are two ways that I see this. Yes, you "own" the house (i.e. don't have a mortgage) but you still have all of the utilities, property taxes, and maintenance costs. My parents' house has been paid off for years, but it's not like living is totally "free" for them--and it always seems there's another project (replacing flooring, cleaning carpets, new washer/dryer, etc.) not to mention keeping it updated (faucets, light fixtures, etc. from the 1970s when they built have now been replaced). And lots of people are forced to rent or vastly prefer it in retirement when they become less able-bodied--and communities designed for 55+ are pretty popular, at least in my area (Minnesota), and I know they are big business in other areas (Florida, Arizona). Not having to worry about maintenance when you have arthritis or something is a really big deal for a lot of folks. I told my dad that the last time he painted the house would be his last--I am never letting my (nearly) 70-year-old father back up on an extension ladder, so God help me. Also, the sense of community in these places is pretty amazing--people check on each other, have card groups, eat meals together, etc. so for widows or widowers, they don't become disconnected from a social life even though they aren't able to drive or whatever.

3) Yes, you can be evicted for not paying rent, however, in my situation, we've always had the backup option in our lease to do a buyout (pay the equivalent of a couple month's rent and break the lease), and then move in with family, if needed. If we'd been locked into a mortgage when the market crashed, and then lost a job, a foreclosure would be a much bigger hit financially than paying $1,200 to break a lease. My sister actually just broke her lease to buy a place, so I know how easy it is. This is one reason we keep an emergency fund that would cover us in a buyout situation.

4) I don't see my apartment as "not my home"--in fact, I've been there as long as I've been married, and I basically know no different. My apartment feels more "like home" than my parents' house where I grew up. It's got all my stuff, I've decorated it nicely, and it's a lovely building perfectly situated near work and other nice things (parks, etc.)

5) Travel--maybe in Minnesota, this is different, because you don't want to leave your house unoccupied and unattended in winter without someone checking in on it. We check in on my parents' house when they travel in winter, because pipes can freeze, snow piles up and it's obvious nobody's home, etc. Last winter, cities recommended people leave their water running overnight because so many pipes were bursting. We even have friends whose house is warmed by a wood burning system, so they literally cannot leave it unattended with no fire, so they have to find a house sitter if they want to be gone in the winter, even for one day. So when I say we can literally lock up and leave, I mean it. Water will keep running for the other units, so pipes are unlikely to freeze, and somebody else deals with all the snow, and it's easy to alert our apartment manager that we'll be gone and someone keeps an eye on things (all included in the price of rent).

6) Landlords can default--maybe this is more common with renting houses. OP and I are both renting apartments. My building has been owned by the same family for many years--my mom actually rented an apartment in the same complex in the 1960s. I don't think it's as risky as you make it seem. It would be in a bank/lender's interest to keep paying tenants in their units, even if the 'owner' defaulted on their payments--the bank then could collect the rents, and keep it attractive as a buying opportunity for another investor. I have literally never heard of a whole apartment building full of tenants being thrown out without notice because someone defaulted. Maybe it does happen, but it's not something I stay awake worrying about.

7) For us, renting has offered more sense of 'security' than buying. Because of the way my job works, every two years there has been a threat of potential job loss. And my husband's job was not something he could do long-term (he knew he could do it for 5 years, but that was it). By continuing to rent, we've been able to be flexible in our thinking. And our dollars have been very flexible. We would not have been able to fund my husband's graduate school if we'd bought a house. We had a lot of money in savings that would not have been there if it had been part of a down payment--instead, it's paying tuition for him to get a much better longterm career. And there's a sense of security in not having to even think about certain problems--for example, when our refrigerator died two days before Christmas, all we had to do was call up the office and we had a new one in a couple hours--DH and I were able to go to work/school without even thinking about it. The apartment handyman actually moved our food to the new fridge for us. ;)

8) Even though we have been pretty hardcore renters, if/when our financial/job situation changes, we may consider buying a house. I have a pretty loud hobby (opera singing) and would love to own a piano and take lessons. But I know that this is an emotional decision, not a financial one. Renting a one bedroom is always going to be cheaper than owning a 3-bedroom house in our area, and that's pretty much just a fact (every time I run a rent vs. buy calculator, we come out way ahead by renting--investments of the cost difference between renting and buying end up paying our rent).

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #68 on: October 16, 2015, 06:59:24 AM »
If you live in Florida, where the two biggest expenses are property taxes and homeowners insurance, it makes perfect sense to rent forever. In fact, part of our FIRE plan is to sell the clownhouse we've had for 16 years by the end of 2017 and rent a 3 BR condo or townhouse, even though our kids will still be teenagers at that point.

I did the math on where we'd be had we continued to rent rather that bought in 1999. We'd be comfortably FIREd by now. But even Mrs. Live Lean still struggles with the stigma of being renters.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #69 on: October 16, 2015, 07:04:59 AM »
If you live in Florida, where the two biggest expenses are property taxes and homeowners insurance, it makes perfect sense to rent forever. In fact, part of our FIRE plan is to sell the clownhouse we've had for 16 years by the end of 2017 and rent a 3 BR condo or townhouse, even though our kids will still be teenagers at that point.

Interesting.  I might have to do some math...

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #70 on: October 16, 2015, 07:07:39 AM »

Well it's up to you but I don't understand some of the pro-rent arguments.

Yes, owning may be more expensive over time, but once the mortgage is clear you have the security. I wouldn't want to be renting in retirement.

And job losses etc are not good reasons. You can be evicted from a rental for not paying just as you can with an owned property. As for 2008 not being a good time - this would be when prices plummeted and buyers bought at vastly reduced prices that have since increased in many areas?  Bubbles have happened in the past and will happen again, 2008 was bad but shouldn't be much of a deterrent, especially in the direct aftermath.

Personally I do agree there are pros and cons to each. I've rented and now own and prefer it but there is more concern about things going wrong. But, the people I know who are late 30s or older seem to regret not buying. I work with a 41 year old who wished he had bought and doesn't know how he will now.

And just so people know, homeowners can travel too. In fact, it's easier - I had clauses in my rental contract about not leaving the place empty for too long, and owners can even rent it out if they go away.

I'm pretty much of the opinion that renting has advantages, but many of us will one day wake up and wish we had the security and comfort of our own home. No worry of a rent increase, no worry of a landlord selling and kicking you out, or things not getting repaired 

One last point on recessions - if you rent and your landlord defaults, bye bye home. If you own, there are options. A reduced value only matters if you try and sell in that time. If you have good history of payments many lenders will allow a payment holiday, especially if you have a lot of equity or have overpaid. Or if you have good savings like many here, you could afford the mortgage even if the worst happened and you lost the job for a while. The point being, there is a perceived idea of freedom with renting, but I find it far riskier and with far fewer choices

I thought about your post last night, because some of it seem directed at things I was saying. I want to point out a few things in your comments, not to start an argument, but just to highlight the different perspectives and thinking on this.

1) "Well it's up to you"--yes, we all get to make our own choices with various reasons that are personal and unique. :)

2) Security argument--there are two ways that I see this. Yes, you "own" the house (i.e. don't have a mortgage) but you still have all of the utilities, property taxes, and maintenance costs. My parents' house has been paid off for years, but it's not like living is totally "free" for them--and it always seems there's another project (replacing flooring, cleaning carpets, new washer/dryer, etc.) not to mention keeping it updated (faucets, light fixtures, etc. from the 1970s when they built have now been replaced). And lots of people are forced to rent or vastly prefer it in retirement when they become less able-bodied--and communities designed for 55+ are pretty popular, at least in my area (Minnesota), and I know they are big business in other areas (Florida, Arizona). Not having to worry about maintenance when you have arthritis or something is a really big deal for a lot of folks. I told my dad that the last time he painted the house would be his last--I am never letting my (nearly) 70-year-old father back up on an extension ladder, so God help me. Also, the sense of community in these places is pretty amazing--people check on each other, have card groups, eat meals together, etc. so for widows or widowers, they don't become disconnected from a social life even though they aren't able to drive or whatever.

3) Yes, you can be evicted for not paying rent, however, in my situation, we've always had the backup option in our lease to do a buyout (pay the equivalent of a couple month's rent and break the lease), and then move in with family, if needed. If we'd been locked into a mortgage when the market crashed, and then lost a job, a foreclosure would be a much bigger hit financially than paying $1,200 to break a lease. My sister actually just broke her lease to buy a place, so I know how easy it is. This is one reason we keep an emergency fund that would cover us in a buyout situation.

4) I don't see my apartment as "not my home"--in fact, I've been there as long as I've been married, and I basically know no different. My apartment feels more "like home" than my parents' house where I grew up. It's got all my stuff, I've decorated it nicely, and it's a lovely building perfectly situated near work and other nice things (parks, etc.)

5) Travel--maybe in Minnesota, this is different, because you don't want to leave your house unoccupied and unattended in winter without someone checking in on it. We check in on my parents' house when they travel in winter, because pipes can freeze, snow piles up and it's obvious nobody's home, etc. Last winter, cities recommended people leave their water running overnight because so many pipes were bursting. We even have friends whose house is warmed by a wood burning system, so they literally cannot leave it unattended with no fire, so they have to find a house sitter if they want to be gone in the winter, even for one day. So when I say we can literally lock up and leave, I mean it. Water will keep running for the other units, so pipes are unlikely to freeze, and somebody else deals with all the snow, and it's easy to alert our apartment manager that we'll be gone and someone keeps an eye on things (all included in the price of rent).

6) Landlords can default--maybe this is more common with renting houses. OP and I are both renting apartments. My building has been owned by the same family for many years--my mom actually rented an apartment in the same complex in the 1960s. I don't think it's as risky as you make it seem. It would be in a bank/lender's interest to keep paying tenants in their units, even if the 'owner' defaulted on their payments--the bank then could collect the rents, and keep it attractive as a buying opportunity for another investor. I have literally never heard of a whole apartment building full of tenants being thrown out without notice because someone defaulted. Maybe it does happen, but it's not something I stay awake worrying about.

7) For us, renting has offered more sense of 'security' than buying. Because of the way my job works, every two years there has been a threat of potential job loss. And my husband's job was not something he could do long-term (he knew he could do it for 5 years, but that was it). By continuing to rent, we've been able to be flexible in our thinking. And our dollars have been very flexible. We would not have been able to fund my husband's graduate school if we'd bought a house. We had a lot of money in savings that would not have been there if it had been part of a down payment--instead, it's paying tuition for him to get a much better longterm career. And there's a sense of security in not having to even think about certain problems--for example, when our refrigerator died two days before Christmas, all we had to do was call up the office and we had a new one in a couple hours--DH and I were able to go to work/school without even thinking about it. The apartment handyman actually moved our food to the new fridge for us. ;)

8) Even though we have been pretty hardcore renters, if/when our financial/job situation changes, we may consider buying a house. I have a pretty loud hobby (opera singing) and would love to own a piano and take lessons. But I know that this is an emotional decision, not a financial one. Renting a one bedroom is always going to be cheaper than owning a 3-bedroom house in our area, and that's pretty much just a fact (every time I run a rent vs. buy calculator, we come out way ahead by renting--investments of the cost difference between renting and buying end up paying our rent).

Good post, and you're right that some of my post was in response to you (not directly, it's just yours was the first response I read so as I scrolled through the rest I was thinking about yours in the back of my mind).

I think ultimately your post proves that there is no right or wrong answer to this. Some of what you said is very different to my experience and part of that is living in a different country. So it's not just "should I rent or buy?" But where do you live, what do you do, what do you want in life?

Hopefully our posts will help to highlight the big points of consideration with this decision.

MrsPete

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #71 on: October 16, 2015, 08:04:43 AM »
Several thoughts:

If the choices were 1) pay rent or 2) pay a mortgage, it might be a contest ... but what no one's really talking about is that mortgages come to an end, and then living in your paid-for house is much cheaper than either of those two options.  I paid off my house more than a decade ago, so for all that time my housing expenses have been taxes (around $1200/year) and upkeep (we did buy a new HVAC system three years ago, and I'm gearing up to replace the carpeting soon).  We could never rent anything as cheaply as living in our paid-for house.

Once you've entered into a mortgage agreement, you've essentially locked yourself into that price (assuming you're smart enough to get a fixed-rate interest rate); whereas, if you rent, you're going to face increases forever.   

This is more of an intangible, but apartments tend to be smaller and not as nice as houses.  I remember when my husband and I were first married and we moved into our house, it was so quiet! I'd never really noticed, for example, that I was used to hearing my neighbor's cars pull into the parking lot at all hours of the night.  Recently I was reminded of this when I spent the night in my daughter's apartment; I could hear the neighbors turning on the showers and flushing the toilets.  No one was obnoxious, but the noises made me aware that other people were sharing this space.  And at her apartment I usually have to park some distance away from her door, whereas in my own home, I have MY parking space right by the door.  Living rooms and kitchens in houses tend to be large enough for groups to gather, whereas my daughter has only a loveseat in her apartment -- her living room isn't big enough to hold a real sofa -- and she has no dining room table /just bar stools.  This type of thing makes a house a more comfortable living environment. 

Also, even if you yourself are great with money and have determined that an apartment is a better financial deal for you personally, your neighbors are going to be mostly people who are living paycheck to paycheck.  Most people who can afford to buy a house, prefer to buy a house.  It's one of the measures of success in America.  While you may have some neighbors who are fine, upstanding citizens ... in my experience living in apartments, you'll always have "those neighbors" who are loud, whose balconies are strewn with beer cans on Sunday morning, and who are just unpleasant.  It's no secret that apartments are broken into more often than private houses -- we just a big police stand-off in an apartment complex nearby; I mean, roads were shut down and such.  In an apartment, if your neighbor keeps a dirty kitchen and gets roaches, so do you.  In an apartment, if your neighbor smokes in bed and sets his apartment on fire, you're in danger too.  In short, living that close to other people isn't always a pleasant experience. 

In an apartment, the management tells you what you can and can't do:  Can't have a clothesline, can't have a dog, can't install a ceiling fan in your living room or paint your bedroom your favorite color.  You can't have a private back yard where your children can play without direct supervision.  Yes, that park is a great "back yard", but are you going to accompany your child every day and let him play as long as he wants?  Even if you live in a neighborhood with an HOA (which is easy to avoid), you have more freedom in a private house.

On the other hand, apartments do often offer pools, tennis courts, exercise rooms, etc. that private houses don't typically have.  But these are shared amenities, and I personally don't place the same value on them that I'd place on my personal living space. 

But to the OP's question:  Is there a stigma about renting forever?  If I hear someone who's been out in the work world a while is still renting, I might think that the person 1) is new in the area and isn't ready to put down roots, or 2) isn't particularly good with money.  Beyond that, I wouldn't dwell on it or make value judgements about them, but the idea that they could make better choices would cross my mind. 


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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #72 on: October 16, 2015, 08:40:46 AM »
I'm in the same city as Zikoris, and our decision to buy in 2002, just before the big run-up in Vancouver real estate was likely one of the best financial decisions we will EVER make in our lifetime. Timing can be everything.

I was 16 in 2002. so yeah, not really an option... :)

Would you have come out ahead if you'd rented a cheap place instead and invested the difference? I'd be curious how the comparison would come out assuming low rent vs whatever you paid for your place.

Interesting question. Considering that our monthly housing costs are under $400 (renting a similar place would probably cost $1200) and we are sitting on about 380k of equity (having bought the place for 150k) I think we made the right choice. When we did have a mortgage, it wasn't a large one, and we were able to invest and pay the mortgage down quite aggressively at the same time.

I would not hesitate to say that our decision to buy back then was a HUGE factor in my reaching my FIRE goal. Does a young couple today have this same opportunity to use RE to a similar effect? Sadly, not likely.


infogoon

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #73 on: October 16, 2015, 08:56:41 AM »
It just makes me wonder then, with all the baggage/headache that comes with homeownership, why do so many (most?) people buy?

I think this is very location-dependent. We bought our house eleven years ago; at the time, our rent on an apartment was $575, and our new mortgage in a nearby but nicer neighborhood was slightly more at $650. Since then, rents have doubled in our old neighborhood. So even if we were still paying our mortgage (we paid it off early) it would still be half the price of renting.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #74 on: October 16, 2015, 09:06:52 AM »
Several thoughts:

If the choices were 1) pay rent or 2) pay a mortgage, it might be a contest ... but what no one's really talking about is that mortgages come to an end, and then living in your paid-for house is much cheaper than either of those two options.  I paid off my house more than a decade ago, so for all that time my housing expenses have been taxes (around $1200/year) and upkeep (we did buy a new HVAC system three years ago, and I'm gearing up to replace the carpeting soon).  We could never rent anything as cheaply as living in our paid-for house.

Not in Vancouver.

Comparing the costs of our apartment to a theoretical condo:
Rent: $776/month, includes utilities
Mortgage-free condo: Strata - $300, property taxes - $100, Garbage/sewage/utilities - $100, two bus passes since we would no longer be walking distance to work - $182-$340 (depending how far out we bought), Maintenance - average $100/month?(not sure, probably lowballing)

TOTAL COST of the paid off place = $782-$940/month - boom, better off renting, and that's not even factoring in the massive amount of mortgage interest you would have paid while it was still there.

Zikoris

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #75 on: October 16, 2015, 09:09:57 AM »
I'm in the same city as Zikoris, and our decision to buy in 2002, just before the big run-up in Vancouver real estate was likely one of the best financial decisions we will EVER make in our lifetime. Timing can be everything.

I was 16 in 2002. so yeah, not really an option... :)

Would you have come out ahead if you'd rented a cheap place instead and invested the difference? I'd be curious how the comparison would come out assuming low rent vs whatever you paid for your place.

Interesting question. Considering that our monthly housing costs are under $400 (renting a similar place would probably cost $1200) and we are sitting on about 380k of equity (having bought the place for 150k) I think we made the right choice. When we did have a mortgage, it wasn't a large one, and we were able to invest and pay the mortgage down quite aggressively at the same time.

I would not hesitate to say that our decision to buy back then was a HUGE factor in my reaching my FIRE goal. Does a young couple today have this same opportunity to use RE to a similar effect? Sadly, not likely.

How do your transportation costs work in to that? We always include that in our calculations, since if we bought a place we would most likely not be within walking distance of work, so we would need bus passes (an extra $182-$340/month for two people depending on location). Maybe you have a car and would have it regardless though.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #76 on: October 16, 2015, 09:23:31 AM »
How do your transportation costs work in to that? We always include that in our calculations, since if we bought a place we would most likely not be within walking distance of work, so we would need bus passes (an extra $182-$340/month for two people depending on location). Maybe you have a car and would have it regardless though.

I worked in construction and my employer provided me a vehicle and paid for insurance and fuel. My wife's work is VERY close to where we live, and this figured prominently in our choice to buy where we did. She will ride her bike or run on good weather days...and take transit or our truck if weather is poor. It's about an 8 minute drive. :)

Zikoris, I would agree with you that it makes ZERO sense for you to even considering buying a home given your individual circumstances couple with the realities of the Vancouver real estate market.

And with the benefit of hindsight, our choice to buy when we did made COMPLETE sense.

Again...timing.


Mntngoat

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #77 on: October 16, 2015, 09:27:07 AM »
.

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.


In our neck of teh woods  (so cal) where $500K is a 50 year old  starter home.   We come out way ahead  to buy.

ML

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #78 on: October 16, 2015, 09:35:07 AM »
@OP your comparing your appartment to a house.  Bad comparison.  Don't buy more than you would rent.  Where I live you can rent a 2BR condo for $2500.  You can buy a brand new 2BR condo for around $400K.  The mortgage would be around $1800ish/mo (tax included) plus HOA dues of maybe $300.  So, roughly on par.  However, you've locked in the cost (principle+intrest stays the same for 30 years) while also gaining equity (several hundred of that 1800/mo goes into your pocket via equity).  So if you're going to stay put and can buy something similar to what you rent, you come out ahead.  With a condo the HOA takes care of major issues.  You're responsible for the toilet, walls, garbage disposal.  Find a handyman and your done.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #79 on: October 16, 2015, 10:21:45 AM »
@OP your comparing your appartment to a house.  Bad comparison.  Don't buy more than you would rent.  Where I live you can rent a 2BR condo for $2500.  You can buy a brand new 2BR condo for around $400K.  The mortgage would be around $1800ish/mo (tax included) plus HOA dues of maybe $300.  So, roughly on par.  However, you've locked in the cost (principle+intrest stays the same for 30 years) while also gaining equity (several hundred of that 1800/mo goes into your pocket via equity).  So if you're going to stay put and can buy something similar to what you rent, you come out ahead.  With a condo the HOA takes care of major issues.  You're responsible for the toilet, walls, garbage disposal.  Find a handyman and your done.

This is perhaps true, but some of what the OP discussed in her post was that they'd be buying a single family home vs. renting an apartment. A condo may make financial sense, but she was talking about having a yard, garage, and extra space for guests, etc.

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #80 on: October 16, 2015, 10:27:47 AM »
This thread has been some delicious food for thought.

On my income, in my area, my rent is $597.50/month for one half of a 2-bedroom, or $1060 for the entire unit (I have a bigger bedroom, so I pay more.) I've been looking into buying, but the HCOL here means that the only places I could afford are studio condos or falling-down-broken houses in the outer limits of the city (definitely not interested, don't have the time/money/skills to fix those up)- any place on the market is going to be a minimum of a $1200/month mortgage + insurance + taxes + HOA, which is over half my post-tax income.

A mortgage on a comparable 2-bedroom condo as I currently live in would be more than I qualify for (>$250,000), so even the math of renting the other bedroom to a roommate doesn't work out because I wouldn't be able to comfortably handle vacancies.

So as much as I want to "own" a house, the math just doesn't line up in my HCOL area. Everytime I hear the whispers in my ear about how it's a sign of financial success, stability, "making it", I have to remember it's just another consumer want trying to lure me into the consumer cesspool trap. Without a mortgage, I comfortably save 50% of my post-tax income, with one, it would be closer to 25% and I wouldn't get to enjoy the consumer indulgences I currently enjoy (fancy whiskey, occasional burrito out, paying for a gym membership.)
« Last Edit: October 16, 2015, 10:30:18 AM by monstermonster »

2Birds1Stone

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #81 on: October 16, 2015, 11:02:58 AM »
I live on Long Island NY.

My SO and I rent a nice 1 bedroom apartment with a HUGE fenced in yard, 15 minutes from work.

We pay $1100/month and this includes rent, heat, electric, water, and cable internet.

The bare minimum property taxes on a 2b/1b small starter home in a half decent area are $4-6k/yr. After you add in maintenance, utilities, insurance, etc you will be paying more than our all inclusive rent, even WITHOUT a mortgage.

It makes absolutely no sense to buy here given our circumstances.

cchrissyy

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #82 on: October 16, 2015, 11:07:21 AM »
But to the OP's question:  Is there a stigma about renting forever?  If I hear someone who's been out in the work world a while is still renting, I might think that the person 1) is new in the area and isn't ready to put down roots, or 2) isn't particularly good with money.  Beyond that, I wouldn't dwell on it or make value judgements about them, but the idea that they could make better choices would cross my mind.

Funny.  As a person who owns a home but lives in a rental, I wonder if some folks think that about me...?  Just like I don't know if every single one of my friends is a homeowner or renter, certainly many of them don't know that about me!

Oh well, whatever people think, it's the wisest financial decision I ever made.

okits

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #83 on: October 16, 2015, 11:14:59 AM »
In a rent vs. own comparison, don't forget that the equity in the owned property has an opportunity cost.  I could sink $500k into buying a similar place to what we rent, and my monthly cash costs after that would be less than rent, but I am foregoing the investment returns that $500k would have brought in my portfolio had I remained a renter.

pachnik

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #84 on: October 16, 2015, 11:21:28 AM »
Not in Vancouver.

Comparing the costs of our apartment to a theoretical condo:
Rent: $776/month, includes utilities
Mortgage-free condo: Strata - $300, property taxes - $100, Garbage/sewage/utilities - $100, two bus passes since we would no longer be walking distance to work - $182-$340 (depending how far out we bought), Maintenance - average $100/month?(not sure, probably lowballing)

TOTAL COST of the paid off place = $782-$940/month - boom, better off renting, and that's not even factoring in the massive amount of mortgage interest you would have paid while it was still there.

Not to mention Special Assessments.  When I owned a studio apartment of 499 sq. feet, I had to pay one very large assessment of $17,000.00 for replacing windows and sliding doors plus a few other things.  I owned in a concrete high rise built in 1976.  This was by far the largest assessment but there were also 1 or 2 smaller ones in the 7 1/2 years that I lived there.  People tend to forget about these.  But they sure do come up in an older building.  Can't remember what the assessment was to replace the elevators.


Zikoris

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #85 on: October 16, 2015, 11:22:55 AM »

Not in Vancouver.

Comparing the costs of our apartment to a theoretical condo:
Rent: $776/month, includes utilities
Mortgage-free condo: Strata - $300, property taxes - $100, Garbage/sewage/utilities - $100, two bus passes since we would no longer be walking distance to work - $182-$340 (depending how far out we bought), Maintenance - average $100/month?(not sure, probably lowballing)

TOTAL COST of the paid off place = $782-$940/month - boom, better off renting, and that's not even factoring in the massive amount of mortgage interest you would have paid while it was still there.

In my experience, this is not quite the case. We own a 800 sq ft condo in Vancouver proper, close to downtown.

Strata: $275/month
Property Tax: $125/month
Garbage/Water/Sewage - $0 (included in above costs)
Maintenance: Most is included in Strata fee (building maintenance). We have owned for 8+ years and have had very, very minimal maintenance costs. Had to get a plumber once, an electrician once, and a locksmith once in 8 years. That is all. We keep things in as good shape as we can by caring for them properly and cleaning regularly (DIY, of course!).
Hydro: $25/month
Condo Insurance: $25/month
Internet/ 2 Phones: $130/month

We are still paying our mortgage, so spend about $240/month on interest at the moment, but that will be gone in less than 3 years as we are paying principal aggressively. Once mortgage is gone, our monthly housing costs will be only $580/month for a very comfortable and well-located space, including 2 phones/internet, plus a little extra here and there for very, very rare maintenance.

For us, it made sense, but like Jon_Snow, we bought before things got too out of hand as they are now. In today's market in Vancouver, I would likely be renting, like Zikoris. HOWEVER, I do personally know many people who have been reno-victed recently and who are struggling to find affordable family housing in the city.

I think you might be underestimating the maintenance because for condos it tends to come in the form of infrequent special levies. I personally know people who have gotten hit with $50,000+ special levies, and my boyfriend (who works in property management) has seen six figure ones. And of course as a building gets older, strata fees have to increase. Hopefully it works well in the long term anyways.

Mmm_Donuts

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #86 on: October 16, 2015, 01:48:58 PM »
In a rent vs. own comparison, don't forget that the equity in the owned property has an opportunity cost.  I could sink $500k into buying a similar place to what we rent, and my monthly cash costs after that would be less than rent, but I am foregoing the investment returns that $500k would have brought in my portfolio had I remained a renter.

Very important point.

Where I live, the average house costs over $1MM. In the same city, you can rent a much nicer-than-average house for 40k a year (opportunity cost of 1MM at 4% withdrawal rate), and you wouldn't have to deal with maintenance costs, property taxes, etc. So in this case it's financially much better to rent.

ysette9

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #87 on: October 16, 2015, 02:15:55 PM »
This thread seems full of personal anecdotes so I might as well add my own. :) I think the person who described renting vs. buying as similar to the decision to marry or not or have kids or not is on to something. The right answer in your personal situation will be different than for other people; there is no universal Right Answer but making the wrong decision in your case can hurt you!

We have been renting a house for three years and prior to that lived in a townhouse we were buying. We rented while owning and renting out our place for two years and eventually sold. (Off topic: it is odd to check both boxes on some forms that ask whether you "rent" or "own".) The goal had been to buy a different/more expensive place closer to work but we have come to the conclusion that living without any debt hanging over our heads is the most light, free, fun feeling! We live in an area where the NYT rent/own calculator firmly comes out to "Rent" except in the 10+ year situations.

There are definitely things that suck about the place we rent now, but that is entirely due to the particular house we rent, not due to renting itself. When I get irritated at the single paned window,/lack of insulation/whatever we talk through it and reaffirm that we can always pay more money to rent a nicer place and still come out ahead. Wanting nicer accommodations does not force one to buy, at least not in our area. As more and more cracks appear in the house due to land subsidence (drought in CA) I am every more grateful that those cracks are NOT MY RESPONSIBILITY. Yay!

FYI - bucking the trend, our household net worth is over $1M and since we don't own a house, that is all in investable assets.

Shane

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #88 on: October 16, 2015, 05:58:49 PM »
When people sell their homes they often report that they've made a "profit" based on the fact that they sold the property for more than the original purchase price. "Wow, I'm a real estate tycoon. I just made a big capital gain on the sale of my residence." It's interesting, though, I've never heard anyone report the actual price they paid for their house/condo, which, including mortgage interest, is often 2X+ what the original sale price was.

Even with today's unusually low interest rates, if you buy a $400K home with a 20% down payment and finance $320K at 3.92%, over 30 years you end up paying $544,683 + $80K deposit = $624,683. Wouldn't this be the actual price of the home? Cash buyers are the only ones who get to pay $400K. So when you sell the place for $XXXK, your cost basis isn't the original purchase price. It's the total of all the mortgage payments you've made + the downpayment, right? Wouldn't that make more sense?

It's true that owning a home and having a mortgage forces people to save money in the form of monthly mortgage payments. If they didn't have to pay their mortgage every month, some people might just blow the money on consumables and have nothing to show for it after 30 years of renting. But, for Mustachians who are looking to optimize the amount of time it takes to become FI, a mortgage seems like an extremely inefficient vehicle to promote savings. Don't you think?

Just to be clear, I'm talking about purchasing a single family home/condo to live in, which is what the OP asked about. People who are knowledgeable about evaluating and purchasing appropriate properties, have skills that allow them to add value by doing some/all of the maintenance themselves, and who look at being a landlord as a business, are in a completely different ballpark from someone who is just looking for a place to live.

Many people have become rich by treating real estate investment as a business. But it's a job. It's not passive income like you can get from index funds. On the other hand, many homeowners have become rich despite the fact that they chose to purchase a home rather than rent and invest the savings. While there may be exceptions to my claim, as reported by several posters above in this thread, generally it's been true that the U.S. stock market has grown much more quickly than real estate. I think it's something like double the rate. So, as a homeowner's equity in his home grows, so does the opportunity cost of having money tied up in a house instead of invested in more productive assets.

Rather than blindly following the herd and purchasing a property because that's what all your siblings or friends are doing, I think it's important for Mustachians to actually run the numbers and make a decision on whether to buy or rent based on the market conditions in their particular area, as well as their own personal preferences. As many posters have mentioned above, for some people there are intangible benefits to owning a home on which it's impossible to put a price tag. It's just important to be clear about why you're buying a house before you sign the paperwork and agree to make mortgage payments for decades into the future.


Brilliantine

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #89 on: October 16, 2015, 06:27:07 PM »
One should also remember that house appreciation is not realized until you actually sell for that price. Who cares how much your house's fair market price is? You're not selling it; you're living in it.

You could, borrow against the equity, I suppose but that defeats the "security" argument.

Even with today's rock-bottom interest rates, if you factor in the opportunity cost of the 20% down payment over the lifetime of a 30-year mortgage loan, renting ALWAYS wins.

When you factor in the emotional stuff such as "houses are nicer, bigger, with stainless steel and quartz..." Yes, well, to each their own... But be honest with yourself and others and admit that you are paying extra for subjective intangibles. 

Eric

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #90 on: October 16, 2015, 06:44:50 PM »
Another lifetime (so far) renter here, and my wife and I will definitely rent up through at least the first few years after FIRE.  Why?  Because it allows us to save way more money.  The "at some point your house will be paid off" argument holds no water for us, as rent is about 1/3 the price of a mortgage (bay area).  Investing the difference over 30 years allows you to pay rent forever and still have more money than it would paying off a mortgage.

I'll also add that "the landlord makes money" argument is a false dichotomy.  The landlord can make a profit AND it can still be beneficial for you to continue to rent.  It's not a parasitic relationship.

As far as a stigma, there's definitely not one around here, as it's a populated area and lots of people rent.  Not that it should matter what other people think...

johnER

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #91 on: October 17, 2015, 01:49:48 PM »
I'm in a HCOL area (NoVa) as well and have been going back and forth on weather to seriously look to buy a place, I don't mind renting, for me the decision on buy vs sell is going to come down to which makes more financial sense, I've always thought that if I spend the effort to maintain my own place it's a better financial choice, but now I'm second guessing that.

I've been playing with the NYT buy vs sell calculator, has anyone else done this and how do you feel its accuracy is and default assumptions?  I've only changed the following but with these changes it has the break even point for buying at about $300 less than my current rent.

$300k house
Stay for 10 years
33% marginal tax rate
$400 Monthly common fees

What do people think, is it reasonable to think I might come out ahead in the NoVa area while sticking to renting?

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #92 on: October 18, 2015, 03:59:01 AM »
One should also remember that house appreciation is not realized until you actually sell for that price. Who cares how much your house's fair market price is? You're not selling it; you're living in it.

You could, borrow against the equity, I suppose but that defeats the "security" argument.

Even with today's rock-bottom interest rates, if you factor in the opportunity cost of the 20% down payment over the lifetime of a 30-year mortgage loan, renting ALWAYS wins.

When you factor in the emotional stuff such as "houses are nicer, bigger, with stainless steel and quartz..." Yes, well, to each their own... But be honest with yourself and others and admit that you are paying extra for subjective intangibles.

"Renting always wins" You must be joking?

There are many place in the country where with today's low-interest rates your mortgage payments are less than rent.  In some cases, mortgage plus taxes, insurance, HOA is still less than rent.
I'll give you a specific example of Vegas property, and I bet Arebelspy could give you at least 6 even better examples from his properties.

I bought a house in Vegas for $67K in 2012.  A homeowner could have put 14K down (3K for closing expenses and fix up costs) borrowed $43K @3.5% his mortgage payments would have been $193/month. Monthly Expenses HOA $50, Insurance $60, Property tax 70, maintenance $100-200   (7 year-old house hardly lived in).  Total expense $573 Since homeowners get lower prices on insurance, and property taxes in most place as well as lower mortgage rates, and can do simple home repair the total cost would have likely been well under $500 month.

I rented the house for $850.  So the convenience cost for renting was $300-350/month, and possibly more depending on the tax bracket. 

Fast forward to today. The 17K put in VTSAX would be worth $27,000 a nice rate of return. However, the house rent has increased to $1,050/month so the cost of rent now exceeding $500/month.
The house is now worth $140K+ and the loan is under 40K, so an 83K profit vs 10K (and I'll add tax free).

Here is the amazing thing even after the huge run up in price in Vegas you still are better off buying than renting. If you bought the house today you need to 32K (for down, closing, and moving in costs) and you would borrow $112,000. This means mortgage payments would be at $500/month all the other expense are the virtually the same so housing expense would about $850 month (not including deducting mortgage interest) So you still are paying $200/month more to rent than buy.  It is true there is an opportunity cost for $32K, but in order for the renter to come out ahead, you'd need to be a Buffett caliber investor, and rents and property appreciation would need to be virtually need be in the <2% range


Helvegen

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #93 on: October 18, 2015, 09:31:19 PM »
Barring some massive implosion of the housing market here, I can never see buying. Right now, I could not buy what I am renting for anywhere near the same monthly price and that has been the same basic story for all three rental houses we have lived in since we moved out here a few years ago.

Now the rents are rapidly catching up to or have caught pace with the price of the mortgage based on what I have seen recently. So now I don't think that if we lost this place it would even be worth it to stay in this part of the country. Our rent would go up $500-$1000 for a similar property, assuming we could even find one. Being house poor isn't on my to do list, so I think we are definitely moving back east in that event. Buying then would be on the table as prices are far more affordable and renting isn't nearly as good a deals as we have enjoyed up until probably soon. Currently, we are MTM tenants. Our landlord is beyond ancient. So the shoe could drop tomorrow or two years from now, but he is in his 90s so...yeah...and when he dies I think it is an absolute given whoever gets these properties next will jack up the rent to market rates. He has his reasons for why he charges below market. I'm glad for that, but it is is a pretty insecure place to sit. All the more reason to have as much money squirreled away as possible and living here definitely allows us to save a lot of money.

Buying a house for me is just a place to live where I have slightly more autonomy to do what I like - case in point - have pets without landlord worry or hassle. I don't have any fantasy of making any money off of it. I could just as easily rent forever if it made financial sense to do so like it has for most of my adult life, but the times are changing and home buying is starting to be a more and more reasonable thing to do eventually.

rubybeth

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #94 on: October 19, 2015, 07:56:12 AM »
Several thoughts:

If the choices were 1) pay rent or 2) pay a mortgage, it might be a contest ... but what no one's really talking about is that mortgages come to an end, and then living in your paid-for house is much cheaper than either of those two options.  I paid off my house more than a decade ago, so for all that time my housing expenses have been taxes (around $1200/year) and upkeep (we did buy a new HVAC system three years ago, and I'm gearing up to replace the carpeting soon).  We could never rent anything as cheaply as living in our paid-for house.

Bolded for emphasis. Not true, I literally pointed this out on the first page, my second post. It's called Michael Bluejay's rent vs. buy calculator which can be extended out to look at 40 years of comparing the costs of renting vs. buying: http://michaelbluejay.com/house/rentvsbuy.html If I invest the money I would have spent on buying, I come out ahead by renting--because my ROI on investing the difference ends up paying my rent.

It really depends on what you're paying in rent vs. what the house will cost in terms of actual price plus utilities, taxes, and maintenance over the time you are living there. Renting and buying is not an easy apples to apples comparison but a calculator like this can help you think about all the true costs of owning.

monkeytree

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #95 on: October 19, 2015, 08:19:27 AM »
Wow, a lot of good stuff here...definitely lots to think about. I played with the NYT calculator as well and it tells me it's only worth it if we stay 10 years or so...and if I up the price of the house by a little more, it tells me to just rent. Factoring in our total lack of DIY skills, it's probably a lot more financially secure to rent and invest the surplus instead of pouring it into a house.

I think at this point, the house is more of a long-term want (remnants of my "American dream" fantasies) than a need (seeing as how our current situation is pretty awesome as I described in my original post), and I'm trying to figure out if this is something my family really wants (ie: how much will our life happiness increase by buying?) or if the whole "stigma" thing is factoring into this.

kite

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #96 on: October 19, 2015, 09:46:33 AM »
Keep in mind, the calculators can only tell you if renting X versus buying X is better.  And that's not what you are evaluating, you're weighing renting X versus buying Y. 
But for the love of bacon, rid yourselves of any concern about "stigma" as this fear of other people's opinion is what fuels spending money you don't have to buy things you don't need to impress people you don't know.   

2ndTimer

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #97 on: October 19, 2015, 10:32:52 AM »
We rented until we bought our "for ever" trailer in our 50's.  It work well for an childless couple.  We could and did accept jobs in distant states and commit to being there in two weeks which enabled us to grab a couple of good opportunities not open to more settled folk.  We lived in places where if we had bought a house we might have made money.  We also lived in places where if we had bought a house we might have lost money so can't say whether we benefited financially or not.  It definitely caused us to be regarded as flakes. 

Adventine

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #98 on: October 19, 2015, 12:48:57 PM »

But for the love of bacon, rid yourselves of any concern about "stigma" as this fear of other people's opinion is what fuels spending money you don't have to buy things you don't need to impress people you don't know.

This, this, this!

clifp

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Re: What's wrong with renting forever?: Stigma of non-home ownership
« Reply #99 on: October 19, 2015, 03:30:50 PM »
Several thoughts:

If the choices were 1) pay rent or 2) pay a mortgage, it might be a contest ... but what no one's really talking about is that mortgages come to an end, and then living in your paid-for house is much cheaper than either of those two options.  I paid off my house more than a decade ago, so for all that time my housing expenses have been taxes (around $1200/year) and upkeep (we did buy a new HVAC system three years ago, and I'm gearing up to replace the carpeting soon).  We could never rent anything as cheaply as living in our paid-for house.

Bolded for emphasis. Not true, I literally pointed this out on the first page, my second post. It's called Michael Bluejay's rent vs. buy calculator which can be extended out to look at 40 years of comparing the costs of renting vs. buying: http://michaelbluejay.com/house/rentvsbuy.html If I invest the money I would have spent on buying, I come out ahead by renting--because my ROI on investing the difference ends up paying my rent.

It really depends on what you're paying in rent vs. what the house will cost in terms of actual price plus utilities, taxes, and maintenance over the time you are living there. Renting and buying is not an easy apples to apples comparison but a calculator like this can help you think about all the true costs of owning.

I like that calculator, I think it factors in all the right things, and it is one of the better calculators I've seen.  The challenge is to find the right numbers for things like house appreciation, investment returns, and annual rent increases.  So you'll want to run it a few times with a range of assumptions.  But once you've  done it you can conclusion, owning/rent is cheaper and a range of $.

Then you can factor in the intangibles which are completely personal.  Then decide that is  worth $1200/year (or whatever) to not have to worry about maintenance, and have the freedom to move to a new place quickly