Renting vs Buying: Weighing the pros and cons

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Originally Posted by Spector
All homes are money pits but one has to live somewhere.


Homes don't have to be massive money pits though. If you buy a new home pre construction, you can almost guarantee that you won't need to spend any money on major repairs, HVAC issues or a new roof for a good 10 years, maybe even 15. And buying pre construction usually means you pay today's prices but by the time you move in a year or two later the home has already gone up in value.
 
Originally Posted by dogememe
If I could afford to buy a home I'd buy one in a heartbeat vs renting. Renting is just throwing away money.


I am in the interesting position of owning my home in Florida (very nice home, 2 acres, 3 car garage, paid off mortgage) and renting an acceptable home in PA. So, I guess I get to compare.


Rental:

The very first thing I noticed is that it's incredibly difficult to rent exactly what you want. I like privacy, acres of land and prefer ranch style homes (stairs are tough on mama's knees) . I found a rental home in PA that met a few of my requirements and I'm happy enough. I hope to be able to remain a renter there for quite some time. The nicer homes don't come up for rent often and are snatched up quickly. Leading to a frustrating search in some areas.

The second thing is that many rental homes end up "for sale" so living there could be a shorter than desired term.

But the bottom line is that I like the rental home, the lack of worry about unforeseen expenses and the ability to "bail out" at any time. Sure, I'd lose a deposit. So what? My co-worker recently purchased a home in the same PA town. Despite vigorous negation and a good price, his home required $30K worth of repairs, is still not right and has gone down in value. If he sells, he may lose $100K. At some point, risking that much money is foolish.

Ownership:

I've owned my FL home for 17 years (since new) and I love it. Now I'm out to pressure wash the driveway and walkway today. Repairs can be stunningly expensive (new AC = $8000-10,000) (new hurricane proof metal roof = $40,000) (well pump and softener/carbon filter $3K) etc. It's expensive to maintain. But it's mine, I can add or subtract what I want to the house. It's located where I want to be, on 2 acres, with the beautiful North East Everglades directly behind me and a personal shooting range.




I'm not sure how things are going to settle out for me, but if I end up in PA "forever" I'll build a home, the way I want, on a piece of land I like.
 
Paying rent guarantees you will never see that money again.
Buying a house at least allows for a chance to see some of your money again.

Renting is paying some one else's mortgage.

I live in Silicon Valley. Many say is is too expensive.
I say it is a great place to make TONS of money.
It takes time and work, but...
 
$140-$170k is a pretty good price.

I'd wait a couple years for the bubble to pop. Houses here are going for ridiculous money.
 
IMO buying is always better than renting where the mortgage isn't a crazy amount higher to renting something comparable. You pay a lot of interest on the mortgage that mortgage interest is able to be claimed on US taxes which could lower the potential tax bracket you are in.

Plus every dollar you put into the house you will get back at a future date as equity with the prices ever increasing and your outstanding principal decreasing. The only downside is that all the repairs and upkeep are up to you and the higher costs of heating/cooling, electricity and insurance.

What I would do is write down the total costs on a monthly basis for both on paper and then look at the returns at 5 years, 10 years, 15, years, 20 years out for the house compared to the money saved renting by lower monthly costs for the rent, heating, electricity, insurance and upkeep and use that to help you make a decision. Any savings you do have renting over buying should be invested to further your returns at a future date.

Good luck!
thumbsup2.gif
 
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Buy it, the only people who will tell you not to invest in real estate are lazy old dudes who are sick of wrenching and too cheap to want to pay someone to do it or financial planners who want your money to make them money, too. The old dudes will tell you not to do it even though they owned three houses at one point, etc.

My parents owned two income properties in a very hot area in Toronto. Their financial planner told them to sell in the 90s and they lost money in every recession while real estate kept appreciating. My dad will work till the day he dies because he sold those houses while other baby boomers are richer than astronauts.

Real estate is the key to wealth. Buy a smaller house in an area that will appreciate in value and you will be rich one day.
 
Originally Posted by NO2


Some factors to consider:

Staying > 5 yrs
Good schools, or good private schools (buy a cheaper house)
Sidewalks (for kids bike riding), or a rural road with light traffic
Exercise/recreational facilities - sidewalks, parks, pool, woods, etc.
Proximity to family
Tolerance for house maintenance
Availability of emergency funds - house will need new roof, appliances, furnace-A/C etc. at inopportune times
Internet, cell service and utility availability. Rural areas should have clean well water.
Smell (e.g. don't buy near a pig farm)
Topography of area - stay away from floodplains, local depressions and fire prone areas
Cost of insurance (car, home, flood)
Medical services (much more important when you are older)



I'm quoting this since it covers most all of the topics everyone else has mentioned as well. I'll answer them in order.

Staying > 5 yrs
Yes. We are staying within the local area for at least 5 years.

Good schools, or good private schools (buy a cheaper house)
I homeschool our daughters so this isn't a concern.

Sidewalks (for kids bike riding), or a rural road with light traffic
I grew up rural and we prefer to stay rural. My daughters would rather ride horses and play in mud than play dress up.

Exercise/recreational facilities - sidewalks, parks, pool, woods, etc.
I get free access for this at the local VA centers so this isn't a concern. Kids would rather play at the beach or at the river than a pool.

Proximity to family
That's the main reason we are staying in the immediate area.

Tolerance for house maintenance
I can't think of anyone who enjoys doing maintenance. :p

Availability of emergency funds - house will need new roof, appliances, furnace-A/C etc. at inopportune times
I have liquid assets in stable markets that I could pull if necessary. We also have a $10k limit credit card for a rainy day that we keep about a $100 balance on just to keep it active

Internet, cell service and utility availability. Rural areas should have clean well water.
We've checked around this area and that doesn't seem like a concern. I do like well water.

Smell (e.g. don't buy near a pig farm)
I grew up on a pig farm. (literally) I certainly don't want to raise my kids around it though.

Topography of area - stay away from floodplains, local depressions and fire prone areas
Noted.

Cost of insurance (car, home, flood)
This also isn't a concern.

Medical services (much more important when you are older)
My entire family is covered by the VA so this isn't a concern either.


As far as down payment, PMI, and loan length, as a disabled veteran, I can get a VA loan that requires no down payment, locked in their rate for a 30 year loan, and they cover PMI. They only approve for 30 year fixed loans, otherwise I'd be looking into a 15 year loan. Either way, I plan to pay extra to pay off the 30 year loan in 15-20 years anyway. Average property tax in our area is 1.025%.

Financially, we bring home about $65k/year, the majority of which isn't taxed. (VA) Our vehicles are paid off. We only have 1 credit card that we keep 99% open for emergency use. Other than utilities, that's all we pay. The military paid off our student loans and the VA covers our healthcare.
 
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Originally Posted by RDY4WAR
My wife and I are both flipping back and forth on this decision. We didn't buy for a long time as I was in the military getting bounced around. I've been out of the military for a while now, and our 2nd daughter was born earlier this year. We've been renting a small 2-bedroom house. It's close to my wife's work and it's all the house we've really needed until now. With the little one getting big enough to need her own room/space, we're discussing whether we should become first time homeowners or just try to find a bigger 3-bedroom house to rent for a few more years and then buy.

I've had people tell me that owning your own home is very rewarding. However, nobody has been able to tell me why it's rewarding other than "well, because it's yours". My answer to that is "no, just instead of paying a landlord, I'm paying a bank, but now also liable for maintenance." I've had others say "you can build equity/value with the home" but if we buy a home, we're doing so with the intention of living in that home the rest of our lives so why should I care about resale value?

Financially, buying isn't a concern. We have good credit. I'm a 100% disabled veteran so I qualify for the veterans home loan with 0% down and fixed 30 year rate. They also cover PMI.

In my area, a 10-15 year old, 1500-1800 sqft, 3 bed, 2 bath house, not in an HOA, will sell for $140-170k.

What I don't know is about the market. Is it a good time to buy right now or is it not?

Better yet.... just tell me what's the pros and cons of buying vs renting. What is the reward for buying besides equity? What the cons? Convince me that it's a good idea to buy a home.


Couple comments:
"I've had others say "you can build equity/value with the home" but if we buy a home, we're doing so with the intention of living in that home the rest of our lives so why should I care about resale value?"

You have a child....a paid off home is a nice thing to leave them....IMO your primary residence is the base of your net worth. From it you can build a nice retirement portfolio. Its a place to tap into should you run into trouble in your older years (but not preferable of course).

You say you can buy for 140-170k: How much to rent an equivalent home?

You say you are disabled: How badly....ie, are you able to maintain a home? If so great, if not, factor in the costs to hire that out.

Your primary home is really a great investment and hedge against inflation. Example: My father built a home in 1961 in Minnesota (an average market), paid $25k. In 2005 he sold it for $225K....a 9 fold increase in value. Something to think about.
 
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Originally Posted by Spector
My opinion, do not purchase a house as an investment. Purchase a house as a place to live with maybe a hope that it will increase in value over the long run. (remember 2007-2008, some people are still under water) If you are going to move in less than 5 years IMO rent, the real estate commission will probably wipe out any increase in value in the first 5 years. Interest may no longer be an advantage with the new tax laws and the doubling of the exemptions, one should look at that as it may not be an advantage. Then you have the other home stuff, HO ins (in lieu of renters) purchasing the one time maintenance items, mowers, tools, hoses, and then the time to do all the maintenance. So much depends on where you live, (do you need earthquake and flood ins) rate of housing inflation, (the boom seems to be over for now) job stability. A huge undertaking. Ours is paid for but maintenance is a huge issue every year as is upgrading as it ages, basically, the costs never end. All homes are money pits but one has to live somewhere. Not as bad as vehicles that lose value the minute you drive them off the lot.

You're paying for all that no matter if you rent or own. Renting you're just paying the owner. Buying lets you lock in most of your housing expenses at today's prices. With rent you're paying the current market value which will almost certainly be higher in 15-20 years. Never mind you'll still be paying in 30+.
 
Originally Posted by JeffKeryk
With a mortgage payment, you know what you are gonna pay.
Rent? Not so much.


Actually rent is more fixed in terms of outlay. Homeowners get the pleasure of paying to replace roofs, fix or replace HVAC, or even utility lines to home.

Despite you home schooling make sure the school district is somewhat diserable. Homes in decent school districts sell quicker , appreciate etc.
 
Originally Posted by CARJ
We bought our house about 5 years ago. We were going to rent when we moved here, but I quickly realized that house rents were $500-$800 a month higher than a mortgage payment for the same kind of house. As a previous posted said, buy what you need and don't get sucked into a house that is huge and fancy.

Yup, renting is almost always more expensive for a similar property even on a monthly payment basis. You are paying your landlords mortgage and property taxes, plus they make a profit. At worst you are about even accounting for maintenance and repairs (remodeling is another matter - but landlords dont remodel much and if they do your rent will go way up). Plus the equity and tax benefits of owning. It is foolish for most people to rent if buying is an option (credit, down payment) and you dont plan to move for at least three years.
 
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Originally Posted by Cujet
Originally Posted by dogememe
If I could afford to buy a home I'd buy one in a heartbeat vs renting. Renting is just throwing away money.


I am in the interesting position of owning my home in Florida (very nice home, 2 acres, 3 car garage, paid off mortgage) and renting an acceptable home in PA. So, I guess I get to compare.


Rental:

The very first thing I noticed is that it's incredibly difficult to rent exactly what you want. I like privacy, acres of land and prefer ranch style homes (stairs are tough on mama's knees) . I found a rental home in PA that met a few of my requirements and I'm happy enough. I hope to be able to remain a renter there for quite some time. The nicer homes don't come up for rent often and are snatched up quickly. Leading to a frustrating search in some areas.

The second thing is that many rental homes end up "for sale" so living there could be a shorter than desired term.

But the bottom line is that I like the rental home, the lack of worry about unforeseen expenses and the ability to "bail out" at any time. Sure, I'd lose a deposit. So what? My co-worker recently purchased a home in the same PA town. Despite vigorous negation and a good price, his home required $30K worth of repairs, is still not right and has gone down in value. If he sells, he may lose $100K. At some point, risking that much money is foolish.

Ownership:

I've owned my FL home for 17 years (since new) and I love it. Now I'm out to pressure wash the driveway and walkway today. Repairs can be stunningly expensive (new AC = $8000-10,000) (new hurricane proof metal roof = $40,000) (well pump and softener/carbon filter $3K) etc. It's expensive to maintain. But it's mine, I can add or subtract what I want to the house. It's located where I want to be, on 2 acres, with the beautiful North East Everglades directly behind me and a personal shooting range.




I'm not sure how things are going to settle out for me, but if I end up in PA "forever" I'll build a home, the way I want, on a piece of land I like.





He nailed it all in this post
 
Originally Posted by maxdustington
Buy it, the only people who will tell you not to invest in real estate are lazy old dudes who are sick of wrenching and too cheap to want to pay someone to do it or financial planners who want your money to make them money, too. The old dudes will tell you not to do it even though they owned three houses at one point, etc.

My parents owned two income properties in a very hot area in Toronto. Their financial planner told them to sell in the 90s and they lost money in every recession while real estate kept appreciating. My dad will work till the day he dies because he sold those houses while other baby boomers are richer than astronauts.

Real estate is the key to wealth. Buy a smaller house in an area that will appreciate in value and you will be rich one day.


My real estate scores were on vacant land. Pick the right property and you need no maintenance, if it's wooded or farm land better yet. Lower taxes as well. It sits there gaining wealth. Houses on the other hand, not so much. Renting your houses? Not so great unless you are a slum lord who has no conscience. I have purchased land that was on the market for over 10 years unsold. Why was it unsold??? Sometimes I think if it doesn't sell quick people assume its a bad property. I sold that Florida property 17 months later for 2.5x my cost plus the buyer paid all settlement fees.
Looking back the one guy who loved it more than I found it and seen the value in it. I'm sorry I sold it, but I knew this offer was more want than common sense.
 
Originally Posted by spasm3
You are buying a home either way. You're either buying it for yourself, or for your landlord. Equity is an advantage, but so is the interest you deduct from your taxes.

The downside is if the buyers buy more than they can really afford, which the realtors and banks push. You have to have an emergency fund for repairs and plan for future upkeep. You also have property taxes.

Buy a house on a 15 year loan. My house is paid off, i'm not moving, so i have no monthly payment.


^^ GOOD ANSWER ^^

Also keep in mind not only is the interest tax deducible but so are the property taxes up to $10,000 a year.

and of course ... weather you plan on moving or not, you actually OWN real property in which the payments eventually end.
 
One item people seem to miss in housing calculations is the time value of money. An example, I own a home worth approx 275,000. That money is sunk in my home (it's paid off). If I sold my home, I could make 4-5% per year off than money (that's $11,000 to $13,750) per year. That should come into your analysis also.
 
Originally Posted by dogememe
If I could afford to buy a home I'd buy one in a heartbeat vs renting. Renting is just throwing away money.

Pablum. I'm renting for a bit more than just the property taxes on my house.

And I no longer have the unpaid part-time job that is maintaining a house. I also don't have to play "what expensive thing might break next?" anymore.
 
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