Renting better than owning?

[javacontour]

Originally Posted By: 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.


Certainly not untrue. However, thats making it an even more apples to oranges comparison, with respect to HELOCs.

If one is comparing living somewhere, to keep the comparison the same, then the same things have to be compared. Compare living in a home for 5 years to changing rentals every five years. Do the same for 10, 15, etc periods and you have an apples to apples comparison.

If you compare renting to living in a home, and then borrowing against that home as you want to buy more goodies, then it's not the same comparison. Ditto for buying every 3-5 years vs renting for 30. Again, not the same comparison.

The bottom line is there are situations where one or the other is the more fiscally responsible path. If you are on the move, like in the military, moving every 3 years, renting may be a good plan.

Then again, buying with housing allowance and then renting out each property you own when you PCS builds up a nice portfolio of property. So someone could likely even make that scenario work fiscally speaking.

 

[LS2JSTS]

Originally Posted By: 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.


OK...If they are "happy" I guess that makes it the better economic decision......

I just find it curious that your declaration that renting is smarter than buying hinges on your personal situation. Which oddly enough necessitates that you OWN a home and rent it out to others to make a profit......Do you see the contradiction here?

 

[dparm]

Originally Posted By: JHZR2
Originally Posted By: dparm
Renting is throwing money away IMO. While it's true you have none of the expenses associated with upkeep, you get no tax benefits and when all is said and done you have nothing to show for it.

There was a joke on 30 Rock last season about the middle class eroding and "you'll be renting forever"...there might be some truth in it.

Key is to get a house you can afford NOW, not later. That's how banks got people: they convinced them to buy based on expected income.


I do not know that it is throwing money away... You have to pay something to live somewere, even in a paid off home. The tax benefits are overdone... Mortgages are good debt only if there is something better that could be done with the money. To pay $1 in interest to get $.30 back in taxes is really a stupid thing. A paid off home offers good tax advantages, since property taxes and whatnot may be wrtitten off.

With a 30 year mortgage, one is effectively renting forever. That is a long time for the bank to own your asset. You buy a home on a 30 year mortgage, you pay double the home's value (or more), and get back 30% of about half of that amount... so net you get what? to pay 1.6-1.8x the home's value? That is a lot of money...

A paid off home is a good investment, and it should be paid in 15 years. Ramsey is right on that. Folks buying more than they can afford makes this unachieveable for many though.



When I look at what I spend in rent versus what a reasonable mortgage would be on the same type of place...definitely makes renting a waste. I live in downtown Chicago (the really popular spot called Lakeview) and it is an absolute waste to rent down here if you can afford to own.

 

[javacontour]

Let's really make this an apples to oranges comparison.

One can buy and improve the home with sweat equity. I don't mean flipping where you are looking to be in and out in 6 months. But buy a home, upgrade it doing the labor, live there for 5 years and THEN sell.

If one is willing to do that, I think, unless the market is totally wacked, one has a decent chance of making a buck.

You cannot improve your apartment and expect to get any more than your security deposit back, maybe.

Now you may be able to work with a landlord by getting rent credits for work you've done on the place. But if I were a landlord, I'd be hesitant to trust any old renter redoing the kitchen.

 

[LS2JSTS]

Originally Posted By: javacontour


One can buy and improve the home with sweat equity. I don't mean flipping where you are looking to be in and out in 6 months. But buy a home, upgrade it doing the labor, live there for 5 years and THEN sell.



Been doing exactly that for the last 30 years with my personal living quarters, with excellent results. Since the tax law change, I've tried not to live in a house much longer than two-three years if I can help it.

 

[StevieC]

Originally Posted By: LS2JSTS

OK...If they are "happy" I guess that makes it the better economic decision......

I just find it curious that your declaration that renting is smarter than buying hinges on your personal situation. Which oddly enough necessitates that you OWN a home and rent it out to others to make a profit......Do you see the contradiction here?
It's an investment like my RRSP's and everything else I'm invested in... It's not for the "Equity" and I'm not the one paying the investment. My small initial investment is making me money tied up in this house. Quite the difference!

 

[StevieC]

Originally Posted By: dparm


When I look at what I spend in rent versus what a reasonable mortgage would be on the same type of place...definitely makes renting a waste. I live in downtown Chicago (the really popular spot called Lakeview) and it is an absolute waste to rent down here if you can afford to own.


There isn't reasonable mortgages to be had in the areas where there are jobs and where there is it is very questionable neighborhoods or closet sized condos.

 

[StevieC]

Ok I have held out long enough and had my fun...

Renting is better than owning if the total costs of everything for that place of residence is worth it in the long run versus owning assuming you invest the difference in cost from owning and let it compound.

You have to do the math and see which is a smarter choice to ensure you aren't heaping money into an "Investment" that is paying back minimal returns over time. (Take into account house value inflation and the costs of upkeep and taxes)

Steve

 

[bluestream]

I would say owing is best. I built my house in 1999 for 375K today it is worth 850K and all paid off. (and tax free when I sell)

SteveC, I offer mortgages as part of my job, and I have clients with variable rate mortgages at less than 2% and fixed rate at 4.65%. Not bad since they were 17% in 1980.

Also, you can take some solace in that our electricity and nat gas rates in Ontario are lower than in the US

 

[StevieC]

Yes but our Hydro (Electric) is ridiculous up here and with HST added to everything that isn't fun.

As for the mortgages I will keep that in mind. My cousin is in the business and I have a very good rate with him.

Steve

 

[slalom44]

Originally Posted By: StevieC
.....Now, before anyone goes chopping up this post, do the math and make sure you are sure about your answer before posting a response.

Okay. Here goes:

Historically, homes have increased in value approximately 5% per year. That means that if you wait long enough (and didn't buy your house in an inflated market), your home will go up in value approximately 5% for every year you own it. You pay interest only on the remaining debt, not the entire value of the house. So for the first several years you're no better off. But as you owe less and less and your house is worth more and more you get ahead.

Twenty five years from now, you will still be paying the same mortgage amount to live in your home (plus a little for increased taxes and insurance), whereas renters end up paying significantly more. Thirty years later (assuming a 30 year mortgage) you only pay taxes while a renter pays the prevailing rate.

You have to look at it over a long time, not just what has happened over the last couple of years. I bought my first house 30 years ago and my cost of housing is cheap compared to someone renting over that same time period.

If you bought a house 3 years ago, then you're screwed. You likely paid too much. You're not paying for housing - you're paying for making a mistake.

Wait a few years - double digit inflation will return, housing prices will skyrocket and you will wish you had bought a house. If you wait too long, you will never be able to afford a decent house. I remember feeling that during the Carter Administration when mortgage rates exceeded 15% and housing prices almost doubled in a couple of years.

Keep in mind that landlords don't rent houses for the fun of it. Most landlords buy homes, rent them out and gradually increase rents over time. They cover their costs and pocket very little for quite a few years. But when they sell the houses, they cash in.

 

[LS2JSTS]

Originally Posted By: StevieC
Originally Posted By: LS2JSTS

OK...If they are "happy" I guess that makes it the better economic decision......

I just find it curious that your declaration that renting is smarter than buying hinges on your personal situation. Which oddly enough necessitates that you OWN a home and rent it out to others to make a profit......Do you see the contradiction here?
It's an investment like my RRSP's and everything else I'm invested in... It's not for the "Equity" and I'm not the one paying the investment. My small initial investment is making me money tied up in this house. Quite the difference!


No difference at all....in fact I'm not entirely sure you understand what I'm saying. Do you honestly think after all our discussions that I dont understand the principle of leveraging and how it can be applied to the real estate market? As per the equity, are you saying the potential equity earned isnt part of the whole equation? Whatever.

Glad you had your fun.

 

[Dave Hess]

Originally Posted By: JHZR2
Most were living in areas that frankly, most folks don't want to. NV? FL? no way. the numbers are proving it... if they were wonderful places to be, folks would still be buying.


Most people are 'cash poor' in FL and would have trouble coming up with as little as $10,000 cash for a down payment without having to dip into their 401(K) or other retirement plan. Plus the job market sucks for people wanting to buy a house and worry about getting laid off. In about 2 years I am out of FL for good.

 

[Steve S]

Originally Posted By: ddrumman2004
Originally Posted By: Schmoe
Well, depends on the situation. If your young and moving around a lot with the job, then no. Renting is better. That's about the only scenario I can think of that would make me want to rent instead.


I have to go along with this statement as well.

My oldest son, age 28, finally bought himself a home along with 4 acres last fall. His payment is just about 100 bucks more than he paid in rent but he can afford it. He just started a new job as a locomotive electrician with the CN railroad.

 

[Patman]

Originally Posted By: StevieC
Yes but our Hydro (Electric) is ridiculous up here and with HST added to everything that isn't fun.




Actually our hydro rates are quite reasonable in Ontario at only 6 to 7 cents per kilowatt hour. It's a lot higher in a lot of places in the US. I thought my last hydro bill was bad because it was almost $400 for two months, until I talked to my friend in New Jersey who told me his last hydro bill was also $400, but for ONE month!

 

[AuthorEditor]

One factor right now for a lot of people is that the job market is so volatile. Even if you think you have a steady job you might be on the street tomorrow, and then owning your home might not be so appealing. I've read that one reason we have such regional disparities in unemployment rates is that the people who've lost their jobs in many cases also bought a house during the recent bubble, and they really can't afford to move to where there are jobs because they can't sell the place. Some of the lucky ones are so far underwater they can just walk away and not feel they are losing anything.

 

[gathermewool]

I'm 27 and renting is by-far the best decision for ATM. I'm lucky enough to rent a room in a condo from a coworker's son who charges
On the flip side, I know guys who just have to have a place to themselves or need to have a really nice place closer to the city. They pay more than twice what I pay each month, which seems like a complete waste to me. I do have a new car to pay off (luckily at 0%) and choose to spend frivolously on other things (ahem**UOA-by-Terry-Dyson**ahem), so it all evens out in the end, probably. My point is that I'm most likely in the majority of people who live very comfortably for so little money.

 

[rjundi]

It all depends on timing.

I did sell my first home purchased for $100k with no money down for 250k 7 years latter. Rented and market crashed and bought my current home with a nice 4.5% interest rate.

No complaints on home ownership.

 

[crinkles]

some cliff notes RE my situation:

property is now unaffordable for just about anyone under 30 years of age that have a family, and two average incomes or one professional income.

to people who say rent money is dead money; interest paid to the bank is also dead money. the first ten year each payment is at least 75% interest with the rest going to capital.

while I am renting, I make extreme efforts to save as much as I can, in fact my rent and savings combined each fortnight is about 20% higher than the bank would loan me... so in my eyes I could afford a decent loan, but the bank doesn't because of the 30% rule of repayments vs income.

While I get incredibly infuriated at the landlord and investment property owner's mentality in australia it's not as bad as it is made out to be, and most people get suckered into buying into the"australian dream" - that's why average, run down houses cost 6 - 10 times average wages down here.

I have no desire to be a slave for the commonwealth bank; at least I can tell the landlord to F.O.... and can leave with 4 weeks notice and go squat on the farm.

 

[Gary Allan]

Quote:
If one is comparing living somewhere, to keep the comparison the same, then the same things have to be compared. Compare living in a home for 5 years to changing rentals every five years. Do the same for 10, 15, etc periods and you have an apples to apples comparison.


I don't understand the exception. It's just more easy to navigate. No "tariffs" that can be quite substantial in your 5,10,15 bracket assuming even a flat market. Now have a reason to move to somewhere when you bought upward or flat ..and need to move in a declining market ..even slightly declining. The renter just can't amass the speculative un-wealth in the situation.