Renting vs. Owning residence - Early Retirement

[mastrr]

How does renting/owning affect FIRE?  My initial thought would be owning is better but have people retired early when they do not own their primary residence?

Does this change when you compare single people to those with a family?

[Terrestrial]

There is no right answer that will universally apply to everybody.  It depends on a ton of factors, and can be very location specific in terms of which is advantageous.  One way or the other has no direct effect on FIRE, it depends what each costs in a person's specific context and location.  If buying house would cost 500k but an equivalent place could be rented for 800 a month I suspect the renter would come out well ahead.  There are other areas where people who buy lock in a fixed cost of living in a highly desirable area and come out well ahead of the renters who have to deal with price inflation as property values rise.

The inherent notion that owners FIRE more easily (especially with a paid off house) just because they do not have a mortgage payment anymore is false.  A paid off house is just an asset that you are using to cover your housing need (and it still has recurring tax/maintenance cost).  It's not really any different in terms of FIRE than a person who saved money by paying a lower rent for years and years because that was the more cost effective choice in their situation, invested it, and can now use that stored value to cover their housing need.

I would start by doing a fiscal comparison taking into account all costs and projected values.  After you do that you can make adjustments for 'intangibles' that are worth different thing to different people (wanting to customize your house favors buying, wanting to be most unencumbered to easily or frequently moving favors renting, wanting security of not being able to be removed from a place you love living at the end of a lease favors buying, not wanting to deal with home repairs favors renting, etc etc). 

[bobechs]

Agree entirely with Terrestrial.  An early retiree faces the same choices a working stiff does; how to apply a finite income to housing needs.  While there may be more flexibility in where to make the rent/buy decision because the retiree's income is not tied to a particular workplace (maybe) once the location is chosen, freely or of necessity, the same factors apply.

In that connection MMM's latest blog post and the comments following are of direct relevance.  It's a great sideview into why and how people discard any economic rationale for what they choose to do with their housing budget.

[brooklynguy]

OP, read these recent Go Curry Cracker articles for an even better breakdown than MMM's latest past on how and why renting can be (and often is) optimal (both in early retirement and during your working years):

http://www.gocurrycracker.com/renters-for-life/

http://www.gocurrycracker.com/how-i-made-102k-in-real-estate/

[norcalmike]

I'm in a position where I love my job and it pays me enough to save and invest plus I get a pension eligible for withdrawal at 50.
I live in an expensive area that puts home ownership out of my reach so I've decided to keep renting but buy a duplex in the valley so I can at least gain some equity in something.
I'm ok with that plan

[2Birds1Stone]

I will be renting, the plan is slow long term travel. Don't want to be tied to one place.

There is a slim chance of buying a super cheap 2b 1b in a no income tax state to establish residency and use as home base.

[mtn]

It really depends on your market and your situation. As soon as I have a downpayment saved up, I'm buying. Rent here for modest place is $1800. That MIGHT get me enough room for a king bed, garage, and a washer and dryer in the apartment. Buying, with taxes and insurance, I'd have about $1,100 a month for a bigger place in the same area (HOA may be more though).

Where I came from before this, it was basically a wash. $700 to rent a place, $400 in mortgage. After factoring in upkeep, down payment, closing costs, it made more sense to rent since the break-even was about 5 years and we knew we wouldn't be there that long.

[Bob W]

Read all the articles on why home buying is a bad deal in general.   The easiest way to state that is that the home owns you and is likely to go down in value while consuming your time and money.  (says I the home owner)

If it was up to me and not my wife,  I would be a renting fool in retirement.   Makes for great flexibility and very little time or money spent on home maintenance.

Every market and every person is different though.   Maybe you should try renting and see how it feels.   If you don't like it, bide your time and wait for the perfect house at the perfect price.   

[EricP]

It's place and situation dependent.   For every Toronto market where renting blows buying out of the water, there's a Denver where the median home price is $297k ($1350 mortgage payment) and the median rent is $1650/mo and your median home is a lot more home than that median rent.

Look up the numbers, do the math and make the decision based on your desired location and flexibility, just make sure to put a lot of points in the rent column if you want to be moving around a lot.

[Cookie78]

I feel like I accidentally stumbled on to a good situation before I knew what I was doing, and long before I knew about mustachianism, by buying a house and renting half of it to someone else to pay the mortgage. In the first house I rented the upper floor and lived in the basement, then a year later lived upstairs in house 2, and kept renting both suites in house 1. Tenants pay for the housing costs. I still get the increase in the value of the houses when I sell. 

When I FIRE I'm selling them both and slow travelling. If I settle down I'll likely rent for the flexibility. If I want to stay in one place I'd consider buying again for the right price/place, but it won't happen for a long time.

[lightmyfire]

I've been a lifelong renter, mostly because of my love of freedom and fear of being tied down.  Recently I've been considering buying some rental property, something like a four-plex in an area around the university (where I could live in one of the units, if I chose to).  Possibly go through a property management company because I'm not super handy and that way I could still travel and/or move.  But I've pretty much even decided against that - I think I'll keep diversifying my portfolio in easier, more hands-off ways. 

[Chris22]

I've always read that the payback for owning over renting is 7 years of occupany (assuming 20% down on a traditional mortgage) but that may have been turned on its head in the recents years due to the turbulent market.  For me, locking in my housing costs (essentially what buying does) would be a prerequisite for retirement.  Home ownership is also a pretty good inflationary hedge over the long term as well.

[Kris]

Okay, what a coincidence that MMM just posted this on his blog!

http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MrMoneyMustache+%28Mr.+Money+Mustache%29

[Cookie78]

Okay, what a coincidence that MMM just posted this on his blog!

http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MrMoneyMustache+%28Mr.+Money+Mustache%29

Interesting. The comments were also interesting.

I have to agree with the quality of life comments. Personally, I hate apartments. I love my yard and the work that comes with it. And I love my dog too and wouldn't give him up to save a couple bucks. When I get home the first thing I do is spend time in the garden. It relaxes and calms me in a way that I never felt when I lived in an apartment. On the plus side, I bought a house that I can rent out the basement suite to pay the mortgage, and is close enough to work to bike and close enough to almost everything else I can walk.

If I had to commute in traffic, or for an hour each way regardless of the method of transportation,or if I had to pay the home ownership costs by myself, I might agree that an apartment is a better solution financially.

[lightmyfire]

Okay, what a coincidence that MMM just posted this on his blog!

http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MrMoneyMustache+%28Mr.+Money+Mustache%29

Interesting. The comments were also interesting.

I have to agree with the quality of life comments. Personally, I hate apartments. I love my yard and the work that comes with it. And I love my dog too and wouldn't give him up to save a couple bucks. When I get home the first thing I do is spend time in the garden. It relaxes and calms me in a way that I never felt when I lived in an apartment. On the plus side, I bought a house that I can rent out the basement suite to pay the mortgage, and is close enough to work to bike and close enough to almost everything else I can walk.

If I had to commute in traffic, or for an hour each way regardless of the method of transportation,or if I had to pay the home ownership costs by myself, I might agree that an apartment is a better solution financially.

But...I rent a house with a yard (and garden, except I don't have time to maintain it).  A fenced yard, where my dog is free to roam.  I think that whole argument about certain things being prohibited in a rental situation is just that - situational.

[Cookie78]

Okay, what a coincidence that MMM just posted this on his blog!

http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MrMoneyMustache+%28Mr.+Money+Mustache%29

Interesting. The comments were also interesting.

I have to agree with the quality of life comments. Personally, I hate apartments. I love my yard and the work that comes with it. And I love my dog too and wouldn't give him up to save a couple bucks. When I get home the first thing I do is spend time in the garden. It relaxes and calms me in a way that I never felt when I lived in an apartment. On the plus side, I bought a house that I can rent out the basement suite to pay the mortgage, and is close enough to work to bike and close enough to almost everything else I can walk.

If I had to commute in traffic, or for an hour each way regardless of the method of transportation,or if I had to pay the home ownership costs by myself, I might agree that an apartment is a better solution financially.

But...I rent a house with a yard (and garden, except I don't have time to maintain it).  A fenced yard, where my dog is free to roam.  I think that whole argument about certain things being prohibited in a rental situation is just that - situational.

Absolutely. It's certainly location specific too. There are a lot of factors to consider. Another thing is that I bought my houses before I had a clue. I was investing just $200/month through some organization that had astronomical MERs. I COULD have saved more by renting, but I would have just spent it on something else. Instead I discovered MMM, did the math and figured out that my accidental choices landed me in a place where, with a little extra effort, I may be able to retire in 2 years! It wouldn't have happened if I was renting. Though I will concede it may have happened if I was renting AND mustachian in my 20s.

I just did the math and it costs me $260 each month plus maintenance/repairs, which up until this point have been very low (except for building a garage a few years ago for $20k - would have been $40k to pay someone else to build it). I didn't include utilities since I'd be paying those anyway if I rented. I don't think I can beat that by renting. Even if I get rid of the dog and the yard and move further from work and rent a room with the crazy college kids.

[brooklynguy]

We're in NYC, which has similar housing economics to Toronto. It took me a year of rooting around in the MLS to come up with a home buying strategy where we came out ahead, and if we didn't want to live in a bad neighborhood, we were stuck with one of a handful of coops in the entirety of Queens. I did eventually find one, which is running us about $250/month cheap as owners than renting something similar, but it's rare.

Is it running you cheaper than renting something similar based on the price you paid, or based on the price you would pay today if you sold and rebought your place at the market rate minus transaction costs and taxes (which is the economic equivalent of what you're doing by keeping it)?

I also navigated the treacherous waters of the NYC real estate market to find a good deal, but even though I try to minimize my amount of home equity by keeping a large mortgage balance and putting the proceeds to work in the market, it's not at all clear that I wouldn't be better off financially by selling it and renting an equivalent place (except that my place is a two-family with a rental unit, which complicates the analysis).

[brooklynguy]

I bought six months ago, so not much in the way of appreciation yet. We are paying $1700/month, utilities, taxes, mortgage and common charges included for a 1000 sq. ft. 2BR/1BA. We were paying $1800/month in rent plus another $150/mo average in utilities on a 680 sq. ft. 2BR/2BA 5 subway stops further into Queens. The NYT rent vs. buy calculator said I'd have to be renting at $1350/mo or less with my time horizon for renting to be the better choice.

Ah, got it.  Of course, the accuracy of the NYT calculator will depend on whether its assumptions about market returns, property appreciation, etc. pan out, but those types of numbers are indeed rare in this city -- which suggests that market forces will bring them back into balance and, at some point, you may face the "problem" of having so much appreciation that the numbers will no longer justify staying put.

[mskyle]

Okay, what a coincidence that MMM just posted this on his blog!

http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MrMoneyMustache+%28Mr.+Money+Mustache%29

Interesting. The comments were also interesting.

I have to agree with the quality of life comments. Personally, I hate apartments. I love my yard and the work that comes with it. And I love my dog too and wouldn't give him up to save a couple bucks. When I get home the first thing I do is spend time in the garden. It relaxes and calms me in a way that I never felt when I lived in an apartment. On the plus side, I bought a house that I can rent out the basement suite to pay the mortgage, and is close enough to work to bike and close enough to almost everything else I can walk.

If I had to commute in traffic, or for an hour each way regardless of the method of transportation,or if I had to pay the home ownership costs by myself, I might agree that an apartment is a better solution financially.

But...I rent a house with a yard (and garden, except I don't have time to maintain it).  A fenced yard, where my dog is free to roam.  I think that whole argument about certain things being prohibited in a rental situation is just that - situational.

And I know plenty of people who own apartments! I think a lot of people get bogged down on stuff that's really not related to owning vs renting. I rent the  first floor of a duplex. I have a friend who owns the first floor of her duplex. We both have flaky upstairs neighbors. We both have small yards. We both live within easy walking or biking distance of work. She gets the hassles and delights of home-ownership, and I get the hassles and delights of renting. But it has nothing to do with the actual housing stock, it's financial and legal arrangements.

[Johnez]

Depends on what kind of person you are really. Are you the guy that is into DIY, gardening, fixing your own cars, or participate in similar hobbies? I'd say owning a house could help in those  and other fun (and often money saving) pursuits. Are you a traveller, a bohemian type, or somewhat minimalist? An apartment would free up the capital you'd waste in a down payment for what you really want to do.

For a young family, I think rental living would be fine to start, but as children start growing up and building friendships, I think putting down roots is important. Home ownership is conducive to that end inany ways.

For what it's worth, I think planning the life you desire with FI/RE in mind is much more  preferable to tailoring your living situation around FI/RE.

[TheContinentalOp]

I plan to FIRE in 5 years (at age 50)

First plan is to bike across the country and back, while I pay to store my stuff at my parent's place. I calculate that by camping most of the way, I drop my expenses even further so my NW will grow.

I'll plan to get a small apt for the winter and then do the AT the following year.  I figure to do about 5-7 years worth of long-distance biking and hiking and then buy a small house in a remote rural area when I decide to start taking SS.

[Sibley]

Right now, I rent a townhouse. This works out pretty well for now. However, I want to buy a house for various reasons. By the time I'm financially ready to buy I hope to have learned enough about the local market to be able to optimize. I'm good with a fixer-upper (to a point). I don't care if the house is painted in zebra stripes, I can paint!

Actually, would someone please buy a suitable house that I'd like in the right neighborhood and proceed to paint it in zebra stripes, polka dots, and other questionable design choices? Then need to sell it when I'm ready to buy so that no one will buy it because it's ugly and I can get it at a very good price. That'd be great.

Oh, various other issues are fine, just nothing too major. Thanks!