Author Topic: Buy vs rent after you've already bought?  (Read 430 times)

pnw_guy

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Buy vs rent after you've already bought?
« on: October 12, 2021, 06:20:56 AM »
When I read buy vs. rent threads on this forum, most of the time the advice is to rent. Especially in expensive areas. And I buy the reasoning too - homes take a lot to maintain and transaction costs for real estate are high.

One question I have is about whether traditional rent vs. buy advice goes out the window for people that already hold property? We bought a house a couple of years ago before I had ever heard of FIRE or MMM. We can afford the mortgage etc., but I wonder if we'd reach FIRE faster if we sold our house and rented? Or, since we're already locked into paying transaction costs on our house, does the typical advice not apply to us?

Paper Chaser

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Re: Buy vs rent after you've already bought?
« Reply #1 on: October 12, 2021, 07:17:56 AM »
This seems like a relatively simple calculation but you need some data. You'd need to know how much money you might walk away with after selling your house. And you'd need to know what it would cost per month to rent a similar place in your location.

If your expected monthly rent will be about what your current housing costs are, then selling and investing the proceeds probably works out. But rent prices almost always go up, and it's not always consistent as we're seeing recently with 20-30% year over year increases being increasingly common. Having a defined mortgage protects you from some of those increasing costs, which I'd say is a positive for owning that's not as easy to quantify.

Malcat

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Re: Buy vs rent after you've already bought?
« Reply #2 on: October 12, 2021, 07:37:39 AM »
Uh, the advice here is not generally to rent.

The advice here is to run the numbers and figure out what trade offs are most worthwhile in terms of preferences and costs, like any other financial/lifestyle decision.

Most people buy or rent primarily for lifestyle reasons. Very, very few people are comfortable with either/or. Almost no one makes the decision purely financially.

The people who are willing to rent long term might be more flexible in their decisions, but the people who are determined to own, are just that, determined to own, and they're willing to trade off whatever they need to in order to do so.

As for whether you already own a home or not, it has no impact, other than to factor in the transaction costs, which is a very simple addition to the math.

So no, the question is not meaningfully different for those who already own houses.

Look at your options honestly, assess what's best for you, and do that.

pnw_guy

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Re: Buy vs rent after you've already bought?
« Reply #3 on: October 12, 2021, 10:13:55 AM »
This seems like a relatively simple calculation but you need some data. You'd need to know how much money you might walk away with after selling your house. And you'd need to know what it would cost per month to rent a similar place in your location.

If your expected monthly rent will be about what your current housing costs are, then selling and investing the proceeds probably works out. But rent prices almost always go up, and it's not always consistent as we're seeing recently with 20-30% year over year increases being increasingly common. Having a defined mortgage protects you from some of those increasing costs, which I'd say is a positive for owning that's not as easy to quantify.

PIMI is about 3k. We could probably rent for cheaper than that. Might be a pretty simple case.

thesis

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Re: Buy vs rent after you've already bought?
« Reply #4 on: October 12, 2021, 01:10:54 PM »
It might only seem like there is a pro-rent bias because the FIRE community pays much closer attention to opportunity costs than the general public, in which there is a very strong homeownership bias (in my experience). Because of this, renting is encouraged far more often than usual, but certainly not exclusively.

But what Malcat said is correct. There is the purely financial perspective which adheres strictly to the numbers, and the more emotional perspective which considers non-financial factors. Run the numbers first, see what makes sense, then ask yourself which decision makes most sense for living your best life. Usually what's best is a combination of these two, though you will find that the FIRE community often encourages the exploration of options. (For example, some people can't imagine living in a small space until they try it and find it works great for them)

Morning Glory

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Re: Buy vs rent after you've already bought?
« Reply #5 on: October 14, 2021, 10:36:01 AM »
This seems like a relatively simple calculation but you need some data. You'd need to know how much money you might walk away with after selling your house. And you'd need to know what it would cost per month to rent a similar place in your location.

If your expected monthly rent will be about what your current housing costs are, then selling and investing the proceeds probably works out. But rent prices almost always go up, and it's not always consistent as we're seeing recently with 20-30% year over year increases being increasingly common. Having a defined mortgage protects you from some of those increasing costs, which I'd say is a positive for owning that's not as easy to quantify.

PIMI is about 3k. We could probably rent for cheaper than that. Might be a pretty simple case.

You have other options. If you want to stay in your area for a long time then purchasing a smaller house or condo might work out better than renting. It really depends on where you live, but where I'm at the rents are really high compared to purchase price so the payback period on buying is only 4 years. Look up a rent-vs-buy calculator and compare some numbers.