Renting better than owning?

[JHZR2]

Originally Posted By: StevieC
[
I did the math over 5 years ago and I don't have the spreadsheet but I worked it out to the penny with taxes, utilities and interest and a $250K house ends up costing you double - triple by the time you are finished paying for it if you buy it with 5% down over 25 years and it won't triple in value in that time. Not saying this is ideal but this is what most people do. Then your money is tied up in the house until you sell it so it's not making money for you and only the houses initial value keeps up with inflation and this is nowhere near the rate it would have to rise to pay you back all the interest, taxes, and utilities you pay versus renting IMO so it's not an investment.

You have to look at long term renting say for 50 years versus home ownership for 50 years to see it doesn't pay to own. Don't forget that you aren't earning interest on your house once paid for but my investments are so who's ahead?



Utilities would be the same regardless of own vs rent. That needs to be normalized on a sqft basis.

Maintenance is a HUGE wildcard in there. New driveway, new roof, even if just counting the "essentials" still is a hige bid amount.

Now, one also needs to consider a reasonable appreciation too. Perhaps extrapolating the 1950-2010 actual price appreciation for the market for the next n years...

I still bet if there is appreciation (true appreciation), it is still just a few percent...

 

[StevieC]

Um no it's not... Heat and hot water are provided in my rent I only pay for hydro (electric) which consists of some lighting and the stove/tv usage and in the summer A/C but it's not that much more than in the winter... It's about 80% cheaper than what my folks pay per sqft.

Maintenance of the house, interest costs in the mortgage and property taxes are all what makes it not worth owning a home even if the houses initial value when purchases grew by 8% each year to keep up with good quality investments.

In my example above those 4 things add up to more than $1700/month.

Dunno about you but if I invested the difference from the $1700/month from my rent/utils combined I would be investing a little over $950/month. @ even a conservative 6% over 25 years that amounts to more than: $661,635.99

Dunno about you but that sounds better than a $250K house that I have in return with a marginal rate of inflation.

 

[javacontour]

I simply don't see how renting can be cheaper unless the price of homes is dropping.

I know it can, so I'm not saying it's not possible.

If you buy a home, and pay for it over 15 or 30 years, your mortgage is likely flat.

Right now, a 2700 square foot home is about the same as the 1200-1300 square foot apartment we rented when the tax advantages of deducting property taxes and mortgage interest. Both are about $1500/month.

My mortgage will likely stay the same, other than tax fluctuations. Rent will likely go up, especially if property is increasing in value and units are full.

Now if the housing market is falling, and landlords are having a hard time filling the units, then rents may be dropping.

At the very least, a home is a potential STORE of value. It's not an investment because of the other costs folks have indicated. However, even in this market, I think the value of my home is rising at a rate comparable with the tax adjusted interest charges.

But that depends on where you live. I live in a community that has a large and growing military presence. Boeing just announced plans to perform fabrication at Mid America airport, so that's supposed to add a few hundred jobs to the area.

Am I saying the market cannot go down? Nope. It can. But so far, my home has been a pretty decent store of value.

I think I was rather lucky with my last home. I bought it in 1996 for $75K and sold it Aug 2007 for $125K, right before everything fell apart.

Even then it was getting to be more difficult as I think lenders were beginning to fear what was happening the starter home area of the market.

The buyer of my home ultimately was foreclosed upon, so even what appeared to be a good buyer wasn't.

It's since been sold again, and it looks like the new owner is really working on the property. There is new landscaping, etc on the property.

But if you can stay in your home for 10+ years, then it's likely a pretty decent store of money. Otherwise, renting may be a more cost effective option.

I think I'm fortunate that the local market is not a roller coaster either direction. Small changes, not drastic rises and drops.

But landlords are in it to make money, so why not be my own landlord and own the home in which I live?

 

[LS2JSTS]

Originally Posted By: JHZR2


I still bet if there is appreciation (true appreciation), it is still just a few percent...



Many, in a lot of different markets, are seeing instant appreciation even in this down market. As they are able to swoop in and nearly steal properties for dimes on the dollar, moving forward appreciation for them will almost guaranteed be larger than single digits. That is assuming we just dont continue this slide into the abyss. Big assumption, I know.

Really, this is one of the hardest topics to discuss in general terms and still have relevance.
Markets are vastly different, people situations are vastly different.....It's like trying to give investment advice without really knowing what someones plans, age and income are. Way too many variables to make any one "rule" fit. For some renting will always make sense, for others not so much, for even a larger group it's a complete rip off.

Everybody, just ask yourself, why do those with large sums of investment cash put up with all the headaches of rental ownership? The answer is simple and points to the reason renting is NOT a good proposition for a large number of the population.

 

[StevieC]

Yes but this is an ideal market situation to do this in... This isn't the norm. and I took this thread as talking about the normal situation of owning versus renting.

The other advantage to renting is you can for the most part pick up and leave at any point (assuming a month to month lease), you aren't responsible for appliances or fixtures. You also don't have to worry about loosing 1 of your 2 incomes in most cases because renting is cheaper than a mortgage, taxes, and utilities for owning a house. You have all your equity in more liquid state if investing. You are in a lower income tax bracket renting than owning a house (if in Canada) insurance is way cheaper for renters than owners and that is another cost that needs to be considered

 

[robshelton]

It goes against what I normally say but StevieC seems correct in his assessment. I think some are missing his plan. He owns a house and rents it out. In the longer term he will enjoy the appreciation without the expenses normally incurred since he can take them against his rental income. Now he just needs to find the least expensive way to live month-to-month, invest what he can and wait. When the time is right, he will sell the property, liquidate some investments and purchase the right property for him. His investments/property will have appreciated and created a lump sum that would have been unavailable had he lived in his rental property.

It's tough and you have to play the averages.
Assets create value.
Expenses drain value.

 

[StevieC]

Even if I didn't have the rental property it would still be wiser to rent than to own a home in the long run IMO

 

[Quattro Pete]

Originally Posted By: StevieC
Now what I didn't mention because I didn't want it to cloud this argument of mine is that I own a house but have it rented out and I'm letting someone else pay for it for me. I only have 5% tied up of my own money.

So what about the cost of upkeep of this rented house and the taxes? Does the rent you charge cover it along with the cost of the mortgage and interest?

 

[LS2JSTS]

Originally Posted By: StevieC
Yes but this is an ideal market situation to do this in... This isn't the norm. and I took this thread as talking about the normal situation of owning versus renting.

The other advantage to renting is you can for the most part pick up and leave at any point (assuming a month to month lease), you aren't responsible for appliances or fixtures. You also don't have to worry about loosing 1 of your 2 incomes in most cases because renting is cheaper than a mortgage, taxes, and utilities for owning a house. You have all your equity in more liquid state if investing. You are in a lower income tax bracket renting than owning a house (if in Canada)


It's the market many are living in so it's part of the equation to making the decision, if anything it makes it a no brainer for many. You are asking the question today, so it comes into play, does not it? But I see your point, so back it up a bit. Like has been mentioned, even over a fourty or fifty year period the appreciation will outstrip the costs of ownership. That has historically been the case, moving forward is a best guess on anybodys part, but I'm betting(hoping...lol) things will straighten out soon enough.

And like I said, this whole topic is so "situational" it's almost impossible to discuss without getting or giving a lot of personal information. The lower tax bracket in CA is a perfect example, simply where someone IS can make a huge difference let alone their personal needs and abilities. Your plan is good for you is all I'm saying. For many others maybe not. For every person that renting makes sense for, there are twenty people that are better served by buying.

 

[StevieC]

Originally Posted By: Quattro Pete
Originally Posted By: StevieC
Now what I didn't mention because I didn't want it to cloud this argument of mine is that I own a house but have it rented out and I'm letting someone else pay for it for me. I only have 5% tied up of my own money.

So what about the cost of upkeep of this rented house and the taxes? Does the rent you charge cover it along with the cost of the mortgage and interest?
Yes... All the costs are covered...

 

[LS2JSTS]

Originally Posted By: StevieC
Even if I didn't have the rental property it would still be wiser to rent than to own a home in the long run IMO

For you? Or as an Absolute that holds true for everyone?


The simplest way I've ever found to explain it to someone is this.....Renting is just putting a middle man between you and the banks.

You pay the maintenance and upkeep for that rental....You just dont get the bill all at once.

 

[VeeDubb]

Financially speaking, it's easy enough to figure this out with one of the gazillion rent vs buy calculators on the Internet. Roughly speaking, owning doesn't really payoff unless you plan on staying for a long time. When I calculated my situation a while back, break even was around 10 years.

Having said that, if you have kids then you have a very compelling reason to own if you can find a stable neighborhood with a sense of community.

 

[StevieC]

Yes but the maintenance and upkeep when shared by many tenants in a building is more efficient and cheaper for everyone involved IMO.

As for your question to me... It holds true for my situation and can't be absolute without it being echoed in all areas where people are reading this.

And from the many different areas I'm aware of in Canada is would seem that it is applicable just about everywhere up here. The U.S. is a different story because I'm not familiar with all of your systems but I would assume most are the same with minor differences.

 

[LS2JSTS]

Originally Posted By: StevieC
Originally Posted By: Quattro Pete
Originally Posted By: StevieC
Now what I didn't mention because I didn't want it to cloud this argument of mine is that I own a house but have it rented out and I'm letting someone else pay for it for me. I only have 5% tied up of my own money.

So what about the cost of upkeep of this rented house and the taxes? Does the rent you charge cover it along with the cost of the mortgage and interest?
Yes... All the costs are covered...



Sooooo....Would your renters be better off renting or buying?

Throwing aide their personal needs as in possible relocation. As a simple economic exercise, are they better off paying your mortgage and making you a profit or buying for themselves?

 

[Gary Allan]

Quote:
If you buy a home, and pay for it over 15 or 30 years, your mortgage is likely flat.


Yes, but how many contemporary home owners ever pay off their original mortgage? Very few. They'll either "trade up" in both house and costs ..resetting any clock on the road to lower debt.


Renters also live cheaper in that they will have no access to home equity to fund short term consumer debt with long term money. They should, by nature, be more flexible in rolling with any punches.

The same "bad habits" may exist with either. A renter just can't do as much harm to themselves if they're economically negligent.

 

[javacontour]

I don't know about Canadian tax laws, but in the US, the landlord may be able to depreciate the property, making it look on paper as if it costs more, reducing the amount of tax paid.

Just another variable in the mix. Do Canadian tax laws make being a landlord more advantageous than being a home owner?

I think the best deal would be to own a rental property where you can rent out enough to cover the costs and live in a unit for "free."

That's what my landlord in Germany was doing. He had a six apartment building, lived in one of the units and rented out the other five. He was there to watch over his property and benefited from having renters pay him to be there.

I think a situation like that would be ideal for someone who either was young, or they were empty nesters.

 

[Win]

Originally Posted By: robshelton
When the time is right, he will sell the property, liquidate some investments and purchase the right property for him. His investments/property will have appreciated and created a lump sum that would have been unavailable had he lived in his rental property.



In this country, because the property is not his primary residence, he would have to pay a long term gain on real estate tax on his gain at the federal level (about the same as the long term capital gain tax or about 15%) and maybe a similar state tax.

It's hard to predict the long term nature of taxes other than that one party wants to raise them more than the other. Extrapolating what works in Canada to what works here sounds dicey to me.

A home you live in is not an investment, it's a home because you have to live somewhere. Real property can be an outstanding investment or it can be a dog. Like anything else, experience and acumen are helpful.

 

[Panzerman]

Think of it as owning is locking your rent payment in for 30 years.

 

[StevieC]

They are better off renting... My house has 2 separate tenants due to the layout of the house and separate entrances.

Both pay just under $1000/month (Utilities are included and they pay any extra over a set amount I decide) and my costs for the house in total considering everything so I don't have to pay a penny out of pocket is almost $1600.

They are happy, I'm happy...

They get lots of space for the price, I make $400/month on the deal and get a house paid for at the end tax free.

The $400/month pays the taxes on the $400/month rental income I'm making versus the expenses and it also goes into a savings account for repairs needed to the house. (Minimal in the last 5 years) but I know the roof will be due in another 8 years and I will have the cash no problem by then.

 

[StevieC]

Originally Posted By: Panzerman
Think of it as owning is locking your rent payment in for 30 years.
I would rather have it unlocked and invest the savings.