Renting Vs. Buying

[dweebs19]

Renting is better for some and buying is better for some. Totally depends on the people involved.

 

[Hawkeye OG]

$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.

Location. Also another big factor. If you live along the coast or in some ridiculous market like SF you are probably better off renting then buying a $500k shack. Midwest living does have it's perks.

 

[Burque]

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.

I think it depends on if it's your full time gig. If I had tenth units and that's all I did I think I could handle it.

If I was still trying to work another career it would be worth the cost to have management.

The issue I take with management is they don't care about my properties nearly as much as I do.

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[Burque]

$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.

There is this thing called insurance and you pay it every month on your house for a reason.

Guaranteed that your landlord didn't pay twelve Grand.

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[Monster]

Some earlier stated location... I agree.
Location and time you will be there are large variables. Current interest rates you qualify for and taxes are other big ones.
There is no right answer fo everyone.
I currently buy but when I retire I’ll sell, go small cause the kids are gone and rent. The profit will be for travel... and someone else can worry about maintaining the property, lawn etc... while we are on the road.

 

[LordKOTL]

There is this thing called insurance and you pay it every month on your house for a reason.

Guaranteed that your landlord didn't pay twelve Grand.

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Perhaps not...but we paid exactly $0. No deductible, no hike in rates, & we didn't have find someone to repair it and deal with them.

My point was: when you rent and shit goes wrong it's someone else's problem. That's not usually the case when you own. My dad and his longtime g/f both own a townhouse; I've heard some horror stories about when stuff breaks, it's not covered by insurance, & they were on the hook to find someone willing to deal with it.

 

[Monster]

Should also mention a benefit in equity... on top of the original investment. Buying a home is more saving than spending... with far better interest gained than a savings account. Renting does rhe same for the owner.

 

[gpphat]

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.

I have 3 buildings with a total of 8 units right now and I still work a full time job. The work I do at my properties comes in waves, I would say for the most part I at least go check on things at some point each weekend. Right now I had to do a bathroom remodel at one unit and some minor maintenance at another, but that has been the main extent of it for the past couple years. I love having my rental properties and I am hoping in the next couple years to buy a couple more properties and eventually turn it into my main source of income.

 

[Hawkeye OG]

For all you peeps with rental properties, at what age did you buy your first rental? How did you get started? Any tips/advice? I'd like to buy some rental properties eventually to supplement my income.

 

[Tater]

Buying, then renting out properties sounds kind of greedy and capitalistic.

 

[airtime143]

For all you peeps with rental properties, at what age did you buy your first rental? How did you get started? Any tips/advice? I'd like to buy some rental properties eventually to supplement my income.

I bought mine because I hated the neighbors (renters). long story, but the people trashed the house and the owner wanted out. I needed a place for my mom to live in, so I saved paying her rent right there.
I was early 30's and the place was a steal. I raided my 401k and bought cash with a buffer amount to remodel.
Took 5 years to pay the 401k back, and the savings I had from taking care of mom led to purchase 2.
From there it got easier... rent went in to an account, at x amount would get another.

As for advice- Dont mortgage the rental if you can help it. Buy outright and have a buffer for repairs. Even if you are handy, you may be out of town or busy working when attention is needed.
Even if you have tons of cash to spare, stay modest in the rental game. Get places that a growing family can afford comfortably. Mine are priced significantly lower than similar places because I want my renters to feel like they have a good thing going. Give em enough of a break that they can save for their own places.

I lucked in to a cheap house close by when the market was shit and had a seller that wanted out... so I was super-lucky.

If I were to start the rental game from scratch, I would take the lead of a lady I rented from when I was 18- she owned a duplex, lived in half and rented the other, which covered her mortgage and then some. Then build from there.

 

[airtime143]

I have 3 buildings with a total of 8 units right now and I still work a full time job. The work I do at my properties comes in waves, I would say for the most part I at least go check on things at some point each weekend. Right now I had to do a bathroom remodel at one unit and some minor maintenance at another, but that has been the main extent of it for the past couple years. I love having my rental properties and I am hoping in the next couple years to buy a couple more properties and eventually turn it into my main source of income.

3 buildings and 8 units.... that is the way to rake in the dough. Nothing near me is MDU... I am in bumble-****.
There was an old motel I was eyeballing... they wanted a reasonable price...brick exterior and gutted inside. Was 12 units that would have made 4 decent apartments when re-done.
Ultimately I chickened out because I didnt know if I could keep it occupied without sinking a crazy amount of time in to it.

 

[modo]

a mortgage is not much more expensive than renting if you do it right. You still have to pay utility bills as a renter and you still have renter's insurance.

As a homeowner, it is better to actually pay down your mortgage than to invest in a 401k in some cases.

I built a new home in 2016 and it has appreciated almost 30%.

Markets will vary, so you need to understand what you are doing. But unless you are short term living, renting is basically flushing your money down a toilet. You are paying off someone else's mortgage.

 

[BNB]

I strongly disagree with the notion that renting is wasting money. I think of it as sort of a service. You give someone money to get something in return. In this case, it's a place to live, and sometimes with amenities that you don't need to pay extra for (Weight room, pool, etc.).

If you think that way, then why keep buying food? Why not buy land and grow/raise your food? That way you keep getting more food without putting more money into it, and you can sell what's extra to eventually make up what you put into it.
Or when you go on vacation, a sporting event, or anything else for that matter... are you thinking about how you're just lighting your money on fire? Or are you thinking about it as getting something back (experience, etc.) for your money?

 

[BNB]

Also, I think most people in this thread seem to be better off than your average American. Most people today don't have anywhere close to 20% to put down on their home to avoid the PMI. PMI is the definition of throwing money away, because you are literally paying more money for nothing extra in return. Paying interest in general is "throwing money away." Same goes with taxes.

The "median priced home" these days is about 260K. Lets say someone did put down 20% on a 30-year mortgage.... Over the life of that loan, they'd pay roughly 170k in interest. You can say it's easy to just pay it off sooner, but again, most people can't, and most people will be paying PMI as well, so that will just be an additional cost. Is this all not "wasted money" as well?

I know my parents bought their home for 150,000 in the mid-90's, and it's worth 350,000 right now. However, it's only worth that much because of the improvements they made to the house. And in the 25 years they've had it, I would guess that they'd spent about 100k in repairs and remodeling. They did a lot when they first bought the house because it wasn't in the best of shape, and then again about 15-20 years later when they needed to update a lot of things. And they did it all themselves, along with the help of family members. When you add in how much they've spent on taxes and interest, the amount spent on repairs/remodeling in addition to the taxes and interest paid is more that than the 200k they would make by selling the home. And it's still not paid off actually, so they wouldn't even get the full 200k, assuming it sells for what it's worth anyway.


In reality, most people who ultimately sell their homes will be lucky to break close to even, after taking into account all the extra costs that went into owning a home.

Again, some quick math:

You buy a 250k house, and put 20% down. Lets say your interest rate is 4%, which is pretty good. Over the course of 30 years, you put in 393,000 to pay off the house. Add in the taxes you've been paying in meantime, and that's now 500,000. Add in insurance, and that's 525,000. Lets say the home was in pretty good condition and you didn't have to put much in for repairs, so over 30 years you put in 30k. That brings you to a total of 555,000.

You'd have to hope your house sells for more than two times what it was when you first bought to break even. Again, a lot of people aren't lucky to have this happen.

 

[BNB]

Note - I'm not saying that renting is better than buying. I'm saying that, at the end of the day, the money put in at the end of the day will almost break even.

The advantage to renting, financially, is the money that is being saved in meantime can be invested elsewhere. If done right, by the time a homeowner sells their home to see a return (possibly), the renter has already seen bigger returns. Obviously this isn't extremely common, but neither is buying a 250k home, paying it off in 15 years, and then seeing it appreciate like crazy in a nice neighborhood.

I can only speak for myself and my situation, but I have friends who make more than I do, and I'm in a better financial situation. The only difference between us is that they own their house and I rent a condo. Maybe I spend my money more wisely, idk. But it's also because I don't have to worry about spending thousands of dollars replacing my roof before the winter, like one of my friends is talking about doing.

At the same time, I do realize that in some cities, renting isn't smart because it's through the roof. So depending on where you live, I can see why buying is the smarter option, as long as you're going to be there long term.

 

[dweebs19]

Again, some quick math:

You buy a 250k house, and put 20% down. Lets say your interest rate is 4%, which is pretty good. Over the course of 30 years, you put in 393,000 to pay off the house. Add in the taxes you've been paying in meantime, and that's now 500,000. Add in insurance, and that's 525,000. Lets say the home was in pretty good condition and you didn't have to put much in for repairs, so over 30 years you put in 30k. That brings you to a total of 555,000.

You'd have to hope your house sells for more than two times what it was when you first bought to break even. Again, a lot of people aren't lucky to have this happen.

I'd be curious to see who comes out head if you take a person who rents and puts in the same 20% down payment and same yearly real estate tax into an index fund and rents vs the guy buying the 250k house.

 

[airtime143]

Note - I'm not saying that renting is better than buying. I'm saying that, at the end of the day, the money put in at the end of the day will almost break even.

The advantage to renting, financially, is the money that is being saved in meantime can be invested elsewhere. If done right, by the time a homeowner sells their home to see a return (possibly), the renter has already seen bigger returns. Obviously this isn't extremely common, but neither is buying a 250k home, paying it off in 15 years, and then seeing it appreciate like crazy in a nice neighborhood.

I can only speak for myself and my situation, but I have friends who make more than I do, and I'm in a better financial situation. The only difference between us is that they own their house and I rent a condo. Maybe I spend my money more wisely, idk. But it's also because I don't have to worry about spending thousands of dollars replacing my roof before the winter, like one of my friends is talking about doing.

At the same time, I do realize that in some cities, renting isn't smart because it's through the roof. So depending on where you live, I can see why buying is the smarter option, as long as you're going to be there long term.

I think one of the biggest mistakes people tend to make is that they buy as expensive a house as they can get a mortgage for.

My lady makes killer money, and I make a respectable living myself. Between the 2 of us I doubt that any of our long term friends are even close to the income we pull in.

We have no kids, and we undoubtedly live in the most modest house of everyone we know.

Sure, some of my friends have beautiful houses while I live in a middle class neighborhood in a house that fills my needs and will never show up on the cover of better homes and gardens.
But that trade off is well worth it for me. My lady and I get to retire before we are 55 with all the toys and a steady, very substantial income.

If someone values an impressive home for status, that is their thing.
Me, I chose to live well under my means in order to solidify myself long term.
For 10 years give or take my friends absolutely had a more lavish life than I did, but in the long term living frugally and not extending myself has rocketed me ahead.

I would also add that if I were to start over from scratch again, I would definitely be patient and let things take shape before digging in and beginning to build- specifically making sure the woman I wound up with was stable and on board with the course I wanted to take.
Too many people start a path, meet a significant other, and have to blow up what they were both building in order to get on the same page. You can lose years of work and investment with a new relationship and the re calibration that comes with it.

 

[BNB]

I'd be curious to see who comes out head if you take a person who rents and puts in the same 20% down payment and same yearly real estate tax into an index fund and rents vs the guy buying the 250k house.

Same. There have been studies done though, and a few of them show that renters who invest their money wisely usually wind up ahead. Some of these studies you have to pay to view apparently (at least from what I found online.)

How well any household will fare financially by buying or renting really
depends on factors no one can predict. Other studies have found that
renters who invest their down payment and any savings from renting
as opposed to owning often come out ahead.

Either way, most financial professionals would caution against viewing
a home purchase as an investment, particularly after factoring in the
cost of maintenance, taxes, insurance and the high costs of buying and
selling, though it’s difficult not to.

It may be hard for people living in bubbly markets to believe, but, over
all, home prices in the United States have risen just 0.37 percent
annualized, after inflation, for the last 126 years, according to
calculations by Robert J. Shiller, an economist who received the Nobel
in economic science in 2013 and wrote the book on speculative
bubbles, “Irrational Exuberance.”

“Disregarding the special amenities that many people value in
homeownership,” Professor Shiller said, “it would be hugely better
invested in the stock market.”

Renting can still be financially advantageous under certain
circumstances. Consider the work in 2012 by the academics Eli
Beracha of Florida International University and Ken Johnson of Florida
Atlantic University. They simulated a horse race between buyers and
renters, and concluded that in many cases, renters came out ahead, at
least during the eight-year stretches they studied.

Theoretical renters put their down payment in a portfolio that often
consisted of more than 50 percent stocks (the professors created a
portfolio that approximated the risk of owning a home), and continued
to invest any savings from renting. But this assumes that there are
savings from renting, which is not always the case, and that the renter
is disciplined enough to actually set the money aside.

The authors’ point, however, is that people often blindly believe that
buying is usually the smarter option. “Most of the public drive to buy is
without looking under the hood,” Professor Johnson said.

Another study, from HelloWallet, a unit of Morningstar, came to similar
conclusions in 2014 when comparing a hypothetical, moderate-income
family that bought, with one that rented, in 20 major cities across the
country. The study projects that median-income families, or those who
earn about $50,000, will often end up with more net wealth if they
rent versus own over the 10 years from 2013 to 2022.

https://business.fiu.edu/pdf/2016/04/To-Buy-or-Rent-a-Home-Weighing-Which-Is-Better.pdf

 

[BNB]

I think one of the biggest mistakes people tend to make is that they buy as expensive a house as they can get a mortgage for.

My lady makes killer money, and I make a respectable living myself. Between the 2 of us I doubt that any of our long term friends are even close to the income we pull in.

We have no kids, and we undoubtedly live in the most modest house of everyone we know.

Sure, some of my friends have beautiful houses while I live in a middle class neighborhood in a house that fills my needs and will never show up on the cover of better homes and gardens.
But that trade off is well worth it for me. My lady and I get to retire before we are 55 with all the toys and a steady, very substantial income.

If someone values an impressive home for status, that is their thing.
Me, I chose to live well under my means in order to solidify myself long term.
For 10 years give or take my friends absolutely had a more lavish life than I did, but in the long term living frugally and not extending myself has rocketed me ahead.

I would also add that if I were to start over from scratch again, I would definitely be patient and let things take shape before digging in and beginning to build- specifically making sure the woman I wound up with was stable and on board with the course I wanted to take.
Too many people start a path, meet a significant other, and have to blow up what they were both building in order to get on the same page. You can lose years of work and investment with a new relationship and the re calibration that comes with it.

Obviously I don't know your exact situation... but based on what you mentioned, that's kind of the point I was alluding to earlier.

You seem to be pretty well off. You can afford to buy property and pay it off quicker. You can also probably afford property in a nicer neighborhood. The chances of the property you own appreciating in value over time is greater than most people.

I'm not doing bad financially, especially for being 27-years old. But right now, I only have enough saved up (20%) to put money down on a house worth $150,000. In the neighborhood I rent in, which is a good neighborhood, the cheapest house I found on Zillow right now is $195,000, and it isn't in very good shape.

So if I bought a house, I would almost be forced to look in a neighborhood that isn't as good, and hope that over time the neighborhood doesn't get worse. In Chicago (where I live), who the hell knows what's gonna happen in over a decade. The neighborhood can either become awesome and the house will triple in worth, or it can go downhill and the house won't be worth much more in a couple of decades.

The situation I'm in is a lot more common. Sure, I can continue saving like I have been, and by the time I'm in my mid to late 30's, I could buy a modest house in a nice neighborhood, but I'm not sure I want to do that. At that point I'd be putting almost all of my savings towards the down payment, closing costs, etc. Over time the money that's gonna go into the house, I just don't know if that will be worth it for me in the long run.

As was mentioned, I think it comes down to whatever situation you're in.