Author Topic: Rent vs Buy with all cash  (Read 2486 times)

ply_cltr

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Rent vs Buy with all cash
« on: April 14, 2016, 11:22:49 PM »
I know everybody's probably tired of the rent vs buy debate, but my situation is a bit different. Going to be moving to Portland, OR soon and we have the option of renting or purchasing a house for all cash. However, we're not sure how long we'll be there--be it 1 year or 10 years. Now usually the clear answer would be to rent, but I feel like skipping a mortgage changes a lot about this answer. Am I wrong?

Here's my quick couch-math. Rent + utils would be maybe $2k/mo. House would be, say, $300k that we'd pay right away. Let's say closing costs on buying/selling house are 6%, property tax is $3k/yr, and utils are $3k/yr. Then after only the first year, renting costs $24k and buying house costs the same, $24k. But if you factor in appreciation (5% in Portland) then the house is worth $315k by end of year, so it's like you really only spent $9k. After year 2 with renting you're $48k in the hole whereas with the house you've spent $30k but the house has also potentially appreciated by $30k (even if it doesn't appreciate at all it seems like you're still better off than renting).

So by that (admittedly sketchy) logic, it seems like going the house route is pretty much always going to better in this case. Am I oversimplifying things?

P.S. - Before anybody mentions it, yes I know it'd technically be better to not pay cash for the house and instead leverage/invest that money. I really just prefer the peace of mind in not having a mortgage (aka option #4 here http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/)

adamcollin

  • Stubble
  • **
  • Posts: 154
  • Age: 28
  • Location: Texas
Re: Rent vs Buy with all cash
« Reply #1 on: April 15, 2016, 03:55:02 AM »
I would suggest you to rent the house as you are not sure for how long you need to stay there.

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2143
  • Location: Cleveland
Re: Rent vs Buy with all cash
« Reply #2 on: April 15, 2016, 06:33:48 AM »
Did you take a look at the NYT rent vs. buy calculator to confirm or refute your assumptions?

Fishindude

  • Handlebar Stache
  • *****
  • Posts: 2135
Re: Rent vs Buy with all cash
« Reply #3 on: April 15, 2016, 06:39:28 AM »
I'd probably rent for at least a year to see how things go, and determine if this is the place you are going to settle before purchasing.

If you do get to the point where you decide to purchase, I think paying cash for a house is always better than having a mortgage.
Not paying interest is a sure thing, making gains in the market is a maybe thing.

mooreprop

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: Rent vs Buy with all cash
« Reply #4 on: April 15, 2016, 06:46:58 AM »
Check your calculations for an unexpected event that lowers the value of real estate.  This has happened before:)  What would you do if the value of your property lowers by 5-10 percent?  If you are O.K. with that, then buy.  In my opinion, the intangibles of owning vs. renting are worth something, but do not assume that real estate always appreciates.  Over the long term, it probably will appreciate.  However, in any given year, there can always be an event that will lower real estate prices.  In my 30 years of buying real estate, there has been one of these "events" every 5-10 years.  The last one was in 2007-2008, so perhaps we will have another one soon?