Renting Vs. Buying

[BNB]

Which do you prefer?

Also, which is more cost effective?



I personally prefer renting to buying because I like having my options open, and buying seems too "permanent" to me. I'd hate buying a house only to want to live somewhere else in a few years, regretting my decision.

I also see these articles stating that buying is cheaper because the average rent paid by people in Illinois is $1,100 a month, while the average mortgage is ~ $900 a month. But there's a lot more payments you're responsible for when buying as opposed to renting. If you own, you pay gas, water, electricity, property tax, home insurance, and you're responsible for all repairs. When you rent, often times heat/water and occasionally electricity are included in your rent. There is no annual property tax you pay, and you aren't paying for things that break (unless you broke it of course.)


For example's sake... Let's say you bought a $200,000 home, and put down 40k to avoid the PMI. This is a 30-year fixed mortgage.

Mortgage - 825/month
Property Tax - 300/month
Insurance - 80/month
Energy Bill (Electricity/Gas) - 280/month
Water- 70/month
Home Repair - 170/month (on average over the life of the house)

I'm going to leave out home improvement and lawn car costs. This can vary a lot.

That comes out to 1,775/month, which is 675 more than the average rent cost.

After 30 years, that's 243,000 more spent on owning as opposed to renting. Add the 40k you put down, and that's 283,000.

The biggest appeal of owning is that it's an investment, and you can sell it to make money back when you're done with it. Ok that's fine, but during that same time, if you were renting and saved over 200,000, that money could have been invested elsewhere, and you could have been making more money throughout all that time instead of waiting decades to see a return.

I suppose if you get lucky, you could buy a house in an okay neighborhood that becomes a great neighborhood over the years, and the value of your home could sky rocket as a result, but there are only so many people that benefit in a way like this.

Am I off base here? Or is the real benefit of owning simply saying that it's yours? And if so, is it really worth that much?

 

[Tater]

I see your points and they do make sense. I have to say though, around here at least our tax is around the amount you listed but that is for a two bedroom townhouse. A $200k house would probably be even higher. Plus, with a townhouse our association fee is $200+ a month. One more thing to add to owning in some cases.

 

[SERE Bear]

We have never went wrong buying real estate. Our current home was bought in 2011 for $217,00 ( va/closing fees included)

Mortgage insurance & taxes = 1550 per month for a grand total of 133,000 paid the last 7 years. Add in 14,500 if you like for maintenance ( havent spent that much )

Total= $147,500.

Renters next door pay $2200 for about the same sqft = $184,800


Im already in the black but lets look at resale value. A house built the same year (2011) with 400sqft less just sold for $285,000. I currently owe $187,000


Chances are we will sell for at least $100,000 more than we owe this fall. Netting ~ $70-75K on the sale.

Net of sale will be at least +$70,000
Take out our monthly costs and it cost us $77,500 to live here 7 years or $923 a month

A case could be made that we Saved $37,300 by owning vs renting as well saving another $444 per month.


Other than just financial benefits of owning there is the satisfaction that no one can tell me what to do the inside of my house. Homeowners association can dictate someone on the outside. any improvements I make are mine and mine alone. Paint a room? I don’t have to ask anyones permission. Install 100 inch projection room with a built-in bar top for a true home theater? Only had to run it by my wife!

People own multiple rentals because they make money from people who would rather rent. ( or cant buy)



Edits

 

[SERE Bear]

Here is a calculator to evaluate your own situation
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

 

[Omeletpants]

I paid off my home 1 year after I bought it, 21 years ago. So I would say buy

 

[airtime143]

Which do you prefer?

Also, which is more cost effective?



I personally prefer renting to buying because I like having my options open, and buying seems too "permanent" to me. I'd hate buying a house only to want to live somewhere else in a few years, regretting my decision.

I also see these articles stating that buying is cheaper because the average rent paid by people in Illinois is $1,100 a month, while the average mortgage is ~ $900 a month. But there's a lot more payments you're responsible for when buying as opposed to renting. If you own, you pay gas, water, electricity, property tax, home insurance, and you're responsible for all repairs. When you rent, often times heat/water and occasionally electricity are included in your rent. There is no annual property tax you pay, and you aren't paying for things that break (unless you broke it of course.)


For example's sake... Let's say you bought a $200,000 home, and put down 40k to avoid the PMI. This is a 30-year fixed mortgage.

Mortgage - 825/month
Property Tax - 300/month
Insurance - 80/month
Energy Bill (Electricity/Gas) - 280/month
Water- 70/month
Home Repair - 170/month (on average over the life of the house)

I'm going to leave out home improvement and lawn car costs. This can vary a lot.

That comes out to 1,775/month, which is 675 more than the average rent cost.

After 30 years, that's 243,000 more spent on owning as opposed to renting. Add the 40k you put down, and that's 283,000.

The biggest appeal of owning is that it's an investment, and you can sell it to make money back when you're done with it. Ok that's fine, but during that same time, if you were renting and saved over 200,000, that money could have been invested elsewhere, and you could have been making more money throughout all that time instead of waiting decades to see a return.

I suppose if you get lucky, you could buy a house in an okay neighborhood that becomes a great neighborhood over the years, and the value of your home could sky rocket as a result, but there are only so many people that benefit in a way like this.

Am I off base here? Or is the real benefit of owning simply saying that it's yours? And if so, is it really worth that much?

A fault I saw here in your breakdown was that renting saves certain utilities... that only really applies in an apartment for the most part.
My renters pay their own utilities except garbage and water... had to have both while working on the houses and just rolled it in to the cost of the rent.

Another flaw in your calculations is inflation.
Lets say you buy now- and pay a grand a month. 10 years from now, that will seem small, 20 it will seem like pennies. Rent will continue to inflate.

Another hidden benefit it credit rating- a homeowner with equity can get really low interest rates on a lot of financing (cars, credit cards), and that could save you tons per year.
Plus, there are the writeoffs and all that jazz.

As long as you are smart about it, stay in a reasonable price range and choose the neighborhood wisely, buying beats the ever loving shit out of renting.

 

[ruprecht]

Renting is a losing proposition, unless you're the landlord.

 

[SERE Bear]

Renting is a losing proposition, unless you're the landlord.

There is a time to rent though, Short term housing is best to rent.

 

[ruprecht]

There is a time to rent though, Short term housing is best to rent.

Yes. Anything long term is a different story.

 

[IBleedBearsBlood]

If you want to move again after purchasing your house, then that’s just someone’s preference and decision. I just got out of debt. I pay $1,500 in rent in Austin. Both cars are paid off and debt free. **** paying 30 years for a house. In 10 months, I’ll be buying a lot outside of Austin. Then I’ll save to build the house. Will take 4 years to have the full amount I need to finish the house. But I’ll be moving in after 2 years once I have all necessities to move in and everything is within city code. The rest of the house will get done in the next 2 years while my family and I are living in it. 4 years for a house just shy of $200,000. I’m Austin, a decent suburban house will cost you $380,000. **** that. The goal for me is to have a house and that’s it. I have my place to stay forever. No mortgage payment, not nothing. Just tax and insurance and basic bills with maybe a car note. Then I just save all my money and put that money to work by investing it. If something ever happens with my job and I have to work at Home Depot for whatever reason, guess what, I’m good. I don’t have a big mortgage payment. So I can afford to pay my bills with a 9 to 5 job with no worries. I won’t have all this extra cash after but I’m not hurting to live at all.

I never have to worry about having a place to stay. Never. And that’s the goal to have in my opinion. And paid off in 4 years. Wish I could do it in 1 year like homeboy but I can’t. I don’t need a $400,000 house or more. **** that. It’s just a fucking place to sit or lay down. After calculating, we are wanting 1.4 million to retire. Plus we want to have at least $80,000 for our son’s college. Plus our funeral lot and cost for burial. All this in the next 28 years. Best chance of getting there faster, investing.

And best of all, my son gets the house when we die. As I tell him, never ever sell the house. If tough times come for you, you have a place to stay mortgage free. Then that gets passed to his kids and so on.



Sent from my iPhone X using Tapatalk

 

[BNB]

Owning a home is literally more expensive in every single state when compared to renting.

"Owning is more expensive everywhere. Across all 50 states and Washington, D.C., it costs more each month to own a home than to rent. The median cost people pay nationwide to own a home is 54% more than the median cost to rent each month."

https://www.cnbc.com/2017/04/07/her...-to-own-vs-rent-a-home-in-every-us-state.html

There's also this:

Yes, a well-maintained home in a desirable location should appreciate over the long-run. But according to this report, the actual rate of return on US real estate (when considering inflation, taxes, and mortgage interest rates) from 1975–2009 was actually below zero:

Assuming an annual depreciation rate of 2.5 percent, a property tax rate of 1.5 percent, a mortgage interest rate of 7 percent, and a marginal income tax rate of 25 percent for a typical taxpayer, the adjusted real rate of return on housing actually falls below zero (-0.575 percent, to be exact).

https://www.moneyunder30.com/renting-is-not-wasted-money

All I know is, for the last few years, I've been renting and I've saved over $20,000. I do not think I would have saved that much if I owned a home, and definitely not if I owned a condo or townhouse (to Tater's point... the HOA fee would have added extra cost.)

 

[SERE Bear]

#fakenews

 

[DC]

If you have found your career or your passion and/or have roots like a wife or children, BUY. The financial security and freedom you will have once the mortgage is paid off is life-changing. That said, **** wasting 30 years paying it off. Come up with additional money to put towards your mortgage principal every month and make it automatic. Use a calculator from Bankrate.com to see the power of an additional $100/month or even $300/month towards your monthly payment. It will literally shave YEARS off your mortgage. Make sure to view the amortization schedule to see the power and effect of extra principal payments every month. Make paying the "extra" a bill that you must honor. That's a theory called "Pay yourself First." Life-changing when you truly adopt it as a financial philosophy. Do it. Do it now.

We pay an extra $152 (rounded up) every month towards principal and I put a TON more towards it every quarter when I can. My 30 year mortgage will be paid off in 16 years, by the time our kids are freshman in college. My goal is to have it paid off when they leave for school so I gotta come up with more.

The stock market will rise and fall, and depending on your timing, you can make or lose money. But, owning your property, is the key to success. You can be a pizza delivery driver and afford a couple hundred a month in property taxes.

 

[Burque]

If you have found your career or your passion and/or have roots like a wife or children, BUY. The financial security and freedom you will have once the mortgage is paid off is life-changing. That said, **** wasting 30 years paying it off. Come up with additional money to put towards your mortgage principal every month and make it automatic. Use a calculator from Bankrate.com to see the power of an additional $100/month or even $300/month towards your monthly payment. It will literally shave YEARS off your mortgage. Make sure to view the amortization schedule to see the power and effect of extra principal payments every month. Make paying the "extra" a bill that you must honor. That's a theory called "Pay yourself First." Life-changing when you truly adopt it as a financial philosophy. Do it. Do it now.

We pay an extra $152 (rounded up) every month towards principal and I put a TON more towards it every quarter when I can. My 30 year mortgage will be paid off in 16 years, by the time our kids are freshman in college. My goal is to have it paid off when they leave for school so I gotta come up with more.

The stock market will rise and fall, and depending on your timing, you can make or lose money. But, owning your property, is the key to success. You can be a pizza delivery driver and afford a couple hundred a month in property taxes.

A real estate buddy of mine actually uses a secret I am a little shy to share. Make the minimum 20% down payment on your house when buying even if you have more saved up and dump that pile in after you have the mortgage. It will jump you ahead in your payment schedule and save thousands in interest. The mtg companies count on most people just paying their mtg each month rather than paying extra. they do not penalize you for paying extra principle that actually moves you ahead on your payment schedule. This is an easy way to jump over a lot of mostly interest payments which are the first 5 years of a mtg.

All this being said I hope more people keep renting houses in masses. I want to retire with a minimum of ten units and would prefer twenty.

depreciation is my tax friend and so are all the maintenance costs. While property taxes are a ***** in Ill remember there are other places to live that are reasonable on taxes.

 

[Hawkeye OG]

Renting is like lighting cash on fire every month. Obviously, if you're not ready to settle down and prefer to move every couple of years, it doesn't make sense to buy. I look at it like this. I built my house 2 years ago in an up and coming neighborhood for $215k. Lots of commercial and residential development happening around me. A house down the street from me, exact same build, just went for $235k and they haven't done near the improvements I have done (fence, deck, landscaping, etc). If I did sell, I'd end up making a pretty penny.

I took out a 30yr fixed and am on pace to pay it off in 20 years. If I continue at that pace, I'll have it paid off by the time I'm 45. 20 years before retirement. Have you thought about the pros of not having to pay a mortgage/rent payment for 20 years before retirement plus all the equity you already have in your house? Invest all of that mortgage payment into maxing out your retirement contributions for 20 years or you can continue to rent and have nothing at the end of it.

At the end of the day, it's all subjective to your situation though. Doesn't sound like you're ready to plant your flag some place yet so probably doesn't make sense for you to buy, but like I said you're better off lighting that cash on fire then renting.

 

[Crystallas]

The simple truth. If you know how to all the maintenance needed for a home, it's cheaper to buy. Things like gardens lower your grocery bill. Things like having a place to do repairs on your car lower auto bills. Things like having a washer and dryer lower your laundromat bills. House layout for storage can reduce the need to ever need a storage locker elsewhere. And to some extend, all can be found as amenities in renting. Then you have permanent changes as an option to your home, like investing in solar for yourself, water well and rain harvesting. Stuff that has up front costs, but pay themselves off quite a bit over time. Home equity is earned, yes, but a lot of what you have in your own house can not be measured in dollars and cents.

But the main thing is knowing how to do maintenance. Painting and decor are the lowest priority in maintenance, so you do run into this problem where a certain type of person watches house flipping shows and think you can update a home to flip, simply with paint and maybe a few new kitchen appliances. No, maintenance means plumbing, roofing, troubleshooting hvac issues, fixing a 30 year old range with a $10 part, vs buying a new $400 one. Replacing breakers and doing some basic carpentry. Knowing how to do something because someone was willing to teach you and you were willing to learn, not just think you can find a youtube how-to video and go in half cocked every time you're motivated to solve some problem.

 

[AussieBear]

renting works if you invest that said saved money and earnz mucho deniro from yuge n great thangs.. if not, youre blowing two loads...

 

[airtime143]

A real estate buddy of mine actually uses a secret I am a little shy to share. Make the minimum 20% down payment on your house when buying even if you have more saved up and dump that pile in after you have the mortgage. It will jump you ahead in your payment schedule and save thousands in interest. The mtg companies count on most people just paying their mtg each month rather than paying extra. they do not penalize you for paying extra principle that actually moves you ahead on your payment schedule. This is an easy way to jump over a lot of mostly interest payments which are the first 5 years of a mtg.

All this being said I hope more people keep renting houses in masses. I want to retire with a minimum of ten units and would prefer twenty.

depreciation is my tax friend and so are all the maintenance costs. While property taxes are a ***** in Ill remember there are other places to live that are reasonable on taxes.

You are shooting for the stars with 10 to 20 units... Good for you.
You going to have a management service run things for you?
I am personally wondering where the tipping point is on that. I want to keep it all in my hands.
I have a hard time estimating where that point is, because one of the places is a huge time and money eater... Let my mom live there. I have to do everything.
When she is gone, I am thinking I can handle 7 or 8 myself and still work, but maybe I am fooling myself.

I have lucked in to a great rental market where I am. Property tax is miniscule, association fees less for one year than most places are for a month, moderate house prices and a solid demand.
I added 2 over the past 18 months and that are up the last of my capital to buy at the time....but I am about a year give or take from the existing units funding an additional unit.

 

[NCChiFan]

Don't forget the tax breaks you get for owning if you itemize.

 

[LordKOTL]

$200k homes...good luck finding that out here.

One major perk about renting is that if something goes horribly wrong...it's someone else's problem. A year and a half ago the floor of our shower cracked open. Easily $12k repair. How much did we pay? Not. A. Damned. Thing.

Choose your poison, though. You can't really do much to the place while renting.