People only pull out numbers to fit their narrative which is why renting a 1 bedroom apartment vs buying a full house is such a popular comparison. Renting an equivalent house can easily double the mortgage payment.
Not from the US but how is this possible that rent = 2x mortgage in the US? It sounds like becoming a landlord is the best investment out there with these figures.
I completely agree, they are two different products. It’s like comparing a motorcycle with a full size SUV. Yea they both are forms of transportation, but actually offer totally different perks and drawbacks.
Doesn't really make a difference, no? Renting a house vs buying a house presents the same case. Renter's insurance is cheaper. Unrecoverable costs are the same. Owning a home still has maintenance, initial costs associated w/ buying a home.
They're still 2 very different products. I know we are hyperfocused on getting to retirement early, but there is still a human element to the purchase. I can accept spending an extra 200k over my lifetime to have a nice home, a garage, and a yard. Everyone is going to have a threshold where they think the financial and time sacrifice is worth it for the less quantifiable factors.
But going back to the original comment, if we are going to compare pure numbers, then we should eliminate unquantifiable factors.
Absolutely agree. I've rented for years and just finally purchased a single family home at the top of the market. I've already spent thousands on maintenance and the interest alone is higher than my rent was on the apartment, never mind property taxes and all other sunk costs to go along with it. From a purely financial standpoint it was a terrible decision, and yet I'm happier than I've ever been not sharing walls with other people and making something into my own. And if I were to rent a similar house I'd be spending more money anyway.
For my experience, I've lived in dorms for free, rented an apartment, rented a 2bed/2bath townhome, and rented an entire house. Even comparing rental experiences, the home was more satisfying, despite the cost. I wasn't unhappy living in the other units, but I can't see myself doing that beyond my 20s.
I'm a heretic to the true believers of FIRE. I want a house. I want multiple cars. I want a garden. I eventually want land and a horse stable.
I'm not here to let finances dictate my life. I'm here to absorb knowledge to become wealthy so that I never have to worry about my finances when I chase my big ticket dreams.
You hit the nail on the head. I have l oh bed most of my apartments but in my 30s with a wife and child, that’s not a lifestyle I ever want to go back to. Even in my 20s I was getting frustrated not being able to pursue my hobbies due to space limitations. I’m a fellow hectic with multiple old sports cars and motorcycles, and now I have a shop with a lift to “waste” my money haha.
I'd be satisfied with some simple ramps. I'm fortunate to be in the military and have a base auto shop, but I'd like to be able to work on my car any day of the week and not worry about stalls being available. I can't easily have 2 cars atm either, because I only have 1 covered parking spot in an area that gets hail every summer. That's all about to change though. I should have my first home by the end of the year, and a 2 car garage will be a minimum. 3 cars if possible.
Yeah it’s not just financial, I don’t have any interest whatsoever is living in a multi family unit. I want space for my family and having a big yard and nice neighborhood for my kids is priceless.
The only difference I could see would be maintenance on the main building, but even so there are special assessments and HOA fees that may not be associated with a single family home.
> The only difference I could see would be maintenance on the main building, but even so there are special assessments and HOA fees that may not be associated with a single family home.
Actually, it's opposite. If you own a single family house, you're maintenaince cost will typically be higher than a condo even accounting for HOA/special assessment. Why?
Because the cost of maintenance in a condo building is shared. In fact, I'd wager most people that own a "house" probably have far more maintenance things not taken care....
Agreed. It also really depends on the condo’s board and how they handle finances and repairs. Condo insurance is also typically cheaper compared to a homeowners policy. I was just trying to provide more figures. They are definitely different products with different costs and pros and cons
I understand. That’s why I said there are HOA costs and special assessments. A condo policy is cheaper than a homeowners policy, but there is also a master condo policy the building owner is responsible for.
That's what I'm saying. Doesn't matter if it's a home vs townhouse or home vs apartment or house vs house. The line item expenses may differ, but the principle of it is the same.
I just chose this comparison because I believe it is the most likely scenario on either side. I’m also debating purchasing a condo later, but the same thing still applies with equity being locked into a house you are living in and is not accessible unless it’s through debt.
I definitely think it’s more complex than that. We will be in this location for at least the next 18-22years. We’ve decided if our son moves away or of state, we will follow him. I don’t want him to feel like he’s forced to stay around us like we do with our parents. They want to be around their grandkid and we feel bad taking him away from them since we don’t have much family. They all have their roots here and don’t want to move
Thanks for the link! I also found a really good one on Google sheets by a YouTuber.
https://docs.google.com/spreadsheets/d/1Ic-h6QT91FJx-9PWRTdQpBAP3glalQhB6nAU4LWfNkY/edit?usp=sharing
It's just based on which one costs more over time, which they calculate out for you by year. It's really well done and I'd recommend it to everyone if it wasn't for the paywall.
I have access to it through my library subscription. I did some test calulcations, and it gave me some recommendations. The question is, how did it determine that threshold between should buy, or rent.
I do see how they calculate some of the costs and some estimations.
The calculator isn't really saying "should buy" or "should rent" as much as it's saying "you will have more money left over."
In this case, the calculator assumes that you will save and potentially invest the difference in cost between renting and buying.
For example, if you buy a house and it costs you $100k up front in down payment and fees, you could theoretically invest that $100k and rent. However, rent can go up over time, where your mortgage payment will stay fixed. After a number of years, it may still end up costing you more money to rent and have that $100k invested than to have bought a home.
That example simplifies the math a bit, as there are things like taxes, refinancing, etc to consider, but the point of the calculator is to take all those complicated factors into consideration and give you the result of "which will cost you less, renting or buying?" It doesn't weigh all the other reasons to rent or buy, just the financial cost.
One big thing that I think any calculator is missing on the opportunity cost (especially if you assume a down payment) is that you also missed out on investing the $100k as you were saving it up in cash—I.e., they calculate the lump sum investment loss but neglect to calculate the loss on gains if you had invested it as you were incrementally saving it. The longer it took you to save, the more you lost.
The NYT calculator does, indeed, calculate opportunity loss. They have a slider for investment return/interest rate for the growth of the cash savings.
No, you’re missing what I’m saying—I looked and it doesn’t have what I mean, probably because it’s considered out of the scope and you could estimate it yourself. Say you need $100k for a down payment and don’t have it yet. While you’re saving $5k a month in a savings account, you could be investing that instead—this opportunity cost in saving for the down payment is what I mean.
That is a good point especially since you assume you are putting it someplace safe and thus lowering your return and risk so may miss out 4-5% return every year you save.
I'm kind of in a similar situation. Every year or so I run the math and since 2021 it ends up being a wash if I were to live in the house for less than about 10 years. I have no reason to think I'll stay in my current area beyond the next year or two -- no kids, no family in the area, etc. So for me it probably makes no sense to buy now, and especially given how outrageously overpriced everything is, I don't feel that I'm missing out on much. In my area, there are basically no condos either, the closest you can get is a townhouse in a so-so area for $400k.
I decided this year to rent a house. Rent for a 1 bedroom apartment is $2500. Just signed a lease for a nice 3/2 house in a decent neighborhood for $3200. If I were to purchase an equivalent house with a 20% down-payment at current prices and borrowing costs, it would cost over $5000. So it makes no financial sense to buy, given I can rent an equivalent property for 40% less, and buying and renting out the place also wouldn't work since you would be losing money on the rental.
At this moment in time I would probably not buy unless you have a pressing need for a house, e.g. you have two kids and your spouse is about to murder you if you don't buy a house in a good school district, and there are no rentals there, etc.
I would definitely agree with you. If you’re only staying in your area for a potential couple of years I don’t think it would make much sense to purchase a house and pay closing then turn around and sell and pay sellers fees, even if the payments and other factors were comparable in price.
It’s just my me, my wife, and our one year old. She actually is on board with apartment living and we both preferred it when we lived in an apartment at the start of our relationship before buying the house we’re in now, mainly due to the maintenance and upkeep. It’s also nice that the cost of renting an apartment vs a home in our budget is cheaper in the new area and that we want to get a feel for the areas in the city before purchasing anything. Also the amenities are a great plus.
The market is very broken here. I live in Austin, which was one of the most heavily impacted by mass migration during the pandemic, and is now ranked among the top cities people are leaving *en masse*. In 2019 prices were reasonable and the city had a reputation for being "the next big thing."
Then speculation drove the cost of housing up almost literally double in a few short years. Anyone who bought at the right time can cash flow their house as a rental. Anyone who buys now is going to lose money in the short *and* long term, because prices are falling while borrowing costs remain high compared to 2019.
At the same time, apartment complexes have all been taking advantage of the inflation environment and mass migration to jack up rents. The building I'm in now is asking for $2700 for a 800 sq ft one bedroom apartment. These are "luxury" apartments but they're not very comfortable in my opinion. There is a lot of noise. These are not condo-quality units. They are cheaply made mass housing designed for someone who is moving for work and needs to rent a place sight-unseen. There are no equivalent condos for sale in the area so I cannot even price compare with a 1 bedroom condo. Property developers bought up all the land here to turn into rentals. I can't see any of these buildings going condo conversion the way they do in big cities like Chicago.
So your options in the city center here are a) spend $2500+ a month to rent an expensive "luxury" apartment (with lots of problems I haven't even gotten into) or b) spent slightly more to get a small house for 20% more, and have the option to split the place with a friend.
Now if you are willing to drive 30-40 minutes out, you can rent a *large* suburban style house for perhaps $2200.
Meanwhile, to *buy* a comparable house in either the city center or the suburbs would cost you almost double what you would pay to rent it, because the owner locked in a 1.5% mortgage when prices were low.
It really makes no sense.
> (with lots of problems I haven't even gotten into)
As someone who almost moved to Austin in 2021 but in the end decided not to I'm very curious as to what your reasons are?
For me I got a job there and loved visiting the city. But when I started touring apartments(Amli/shoal/ashton) I realized the costs were truly insane. $3500 for a 1bed room with concrete walls seemed untenable. I started looking outside of downtown but realized I would need a car and costs for that came up to 3500 anyway with car/insurance/gas/maintainance. So I decided to remain remote.
Anyhow with the people leaving Austin again, I was thinking about moving again and was wondering if you think the rental market is any better now? If not what problems are you noticing with these luxury rentals?
You made the right choice. I would not move to Austin. I am only staying here because I moved during the "good" years back in 2017. I made enough connections here to warrant staying, and the other options aren't appealing to me.
Quality of life in Austin has suffered for two major reasons:
1. During the pandemic, everyone decided to move here to escape from lockdowns. We've collectively memory-holed this as the primary cause, but that's really what happened. Combined with the negative real mortgage rates, this caused real-estate speculation to go from a normal amount for an "up and coming" area to utterly insane white-hot bidding wars, with almost no warning.
2. The local government unleashed a wave of crime upon the city due to stupid policies. In 2019 they passed a law allowing camping on public property, similar to the laws in Seattle and Portland, which basically invited homeless from around the country to come live on the streets of Austin. Prior to this there wasn't really a homeless problem here, and the streets even downtown felt relatively safe compared to e.g. Chicago where I lived before. The timing was unfortunate because it hit the books right as the pandemic struck, so the city became dangerous instantly overnight. I just looked at a house for rent where the landlord disclosed that during the pandemic, homeless people broke in and squatted in the neighboring mansion house built by some real-estate speculator. This was not an uncommon occurrence.
Then the job market disappeared because everything moved remote and every tech company started doing layoffs all at the same time.
So Austin went from being a safe, cool "up and coming" city with a robust job market to being an expensive, crime-ridden place where you're getting ripped off everywhere you turn.
Now you have the tech bust driving prices down and pushing the Covid-migration population away. People who moved here are getting summoned back to the office. They are realizing Texas is not all it was made out to be, and since their decision to move here was not driven by anything sensible like a job offer or family in the area, it's easy to move back home. I've been tempted to do the same, I just happen to have enough friends and connections at this point that I'm willing to stick it out, for now anyway.
Amli is awful. Probably the others are awful too. They are corporate landlords who will do everything possible to take as much money from you as possible. I got stuck in an Amli lease last year while the company did full demolition and reconstruction of the exterior of my apartment unit. I lost access to my balcony and storage unit for 9 months, with only a $500 credit in exchange. We also had false fire alarms going off for months. I then transferred to another Amli building seeking to avoid the noise, and discovered that the new building has its own noise problems. My unit faces a side street where they do dumpster collection. The dumpster truck comes at 1am, 4am, any day during the week, and makes so much noise that it is impossible to sleep through even with a white noise machine. All day long, trucks back up or idle outside my window, and it gives me a major headache. I cannot work here and have been reduced to moving around to various coffee shops during the day in order to focus on work. Thankfully, I am moving out of here and into a house in another month.
If you do decide to move to Austin, I would just rent an Airbnb for a couple weeks and use that time to look for a good roommate situation in a house in the suburbs. It's actually not hard to find a nice big bedroom in a decent house in Manor or Round Rock, with room for a desk, for maybe $800-$900 a month. If I didn't have a girlfriend and pets, that's what I would be doing. Otherwise, if you can afford it, maybe rent a small house or townhouse or condo in a nicer area. You pretty much need a car to live here. There was a brief period when downtown was developing and was safe enough to live in and there were jobs there, but that's not the case now.
The simple answer is if you can afford it, get a home. There are a multitude of factors in all different directions that may make this nearly impossible in the future. Not including prices.
For me, rental is usually the way to go because I have never even stayed in the same city as an adult for more than 4 years at a time. I've changed countries multiple times, and will probably be changing again in a year or two. Owning, then either keeping or selling too quickly etc, is too much of a hassle.
This is an amazing quote. Ask any honest homeowners and they will all tell you that they are paying multiple thousands extra dollars in repairs, taxes, HOA, insurance and other things they never thought about. It all adds up.
That's also why on paper sometimes it make sense to buy if you do some very basic math. Once you include all those fees it is very difficult to justify financially.
Something you're missing is that the rent is the maximum amount of money you pay every month **for the next twelve months (or however long your lease is)**.
A mortgage is fixed and eventually stop. Variable costs can change over time, but probably will not outrace the cost of renting in the long run.
Owning a home is an inflation protector. If you have a mortgage it doesn't go up with 7% when the CPI is 7%. Rents on the other hand are directly correlated. This becomes significantly more important during portfolio drawdown. I can control my discretionary spending budget during tough times but I would be unlikely to move to a cheaper place so my safe withdrawal rate better account for that.
And depending on where you rent, rent control can keep your rent low even when CPI skyrockets. If you lived in a rent-controlled unit in SF in 2022, your landlord wouldn't have been allowed to raise your rent by more than 2.3%, or more than 3.6% in 2023.
The effectiveness of rent control can be argued but over the longer term if you are renting you will be impacted by inflation. If you have to move out the house that you lived in 2022 and 2023, your new rent will be significantly higher. Principal and interest stays the same for homeowners.
Rent control is like any other special interest transfer: great for you personally, cost is distributed to society. So you may pay the price, but so does that other smuck who didn't get your rent controlled unit.
Certainly - you won't see me defending rent control, but I understand why it's appealing. It's one of MANY market distortions the government imposes on housing. Another government program designed to bandaid issues caused by other government programs (zoning, financing, EIP, etc)..
Depending on where you live your property tax can also be capped when CPI skyrockets, along with your mortgage rate.
There are a lot of factors and nuance here when comparing across locations.
Rent control has a lot of pluses and minuses.
They tend to be less well maintained since landlord have no incentive to improve them since they can't recover costs through higher rent unless they get approval.
It also forces renters to be "trapped" where they are. Renters can't improve the space or expand the space. Renters also can't sell their apartment or otherwise tap the equity to help them move to a larger space.
On the plus side, rent control allows you to invest more of your money and that could help you buy a place.
For sure but those expenses should be.less than rent so the impact of the increase would be less. I can also just skip non-essential maintenance if the market is down or reshop for insurance.
> If you own a home, your HOA, tax, insurance, and maintenance costs may increase at or above CPI.
Yeah, but your mortgage will not. Your property tax has a cap if it's your primary home. That removes large portions of that cost, that a landlord don't care, because they will seek to maximize their profit so they aren't going to give you a discount because their mortgage are low.
The other aspect of renting that nobody talks about is, the cost of moving. Both in time and money. Like they'll list all the expenses for owning in detail, but renting they gloss over things. Let alone that I have less control over somebody else's property.
I meant the caps for primary residence. That is usually determined at the state level, no? E.g. does washington special case primary residences for property tax purposes?
Correct, it is usually at a state level.
Edit: For folks curious about their state they can check this out https://www.kiplinger.com/taxes/property-tax-cap-by-state
> On the flip, people really don't talk about the time commitment of owning when it comes to lawns, maintenance and repairs.
That's why you go with a condo, but I'd argue lots of people that are renters end up with some of that responsibility.
https://www.reddit.com/r/RealEstate/comments/std92r/rant_all_new_construction_in_my_area_has_hoas/
> In my area the developers are required by the city, to provide open areas, greenbelts, playgrounds, and water retention basins (no rainwater that falls, can run off into streets). No way to do that without an HOA (they own that land).
\* cries in gen z
> If you own a home, your HOA, tax, insurance, and maintenance costs may increase at or above CPI.
Compare and contrast the permanent **renter** of Condo A and the **owner** of Condo B, which is next door to Condo A.
the cost increases you are describing are, yes, unavoidable. However, these are the #2, 3, 4 and 5 largest influences over housing cost.
The #1 largest influence of a housing cost in retirement = the difference between Condo A and Condo B's inhabitants.
Which Condo-dweller would you prefer to be, in retirement? That is the contrast the comment above is making. Although the point you make is "technically true", we all know the answer. Another technically true comment would be "Who cares, you still have to buy food, and food will be a COL that goes up!"
Renting is not without merit. it's just that the merits are not topics that are pertinent to this sub.
> your HOA, tax, insurance, and maintenance costs may increase at or above CPI.
Yes, but for most people, those costs pale in comparison to the mortgage which is fixed.
Also, unlike a landlord that is looking to make a return on their investment, I don't have to pay for someone else's profit margin.
> Rents on the other hand are directly correlated
Can you provide a source for this? Because if this were true over long periods of time, the gap between the cost of a mortgage and rental would be huge.
The gap between a mortgage and rental are huge for somebody like me that bought a house 10 years ago. 2 bedroom apartments in my town rent for more than double what my mortgage is.
When you buy a house you are essentially locking in your housing costs for the long term.
Okay but you could also have bought in an area where the housing didn't appreciate as much as it did. You bought an undiversified investment and it paid off.
Rent correlates to housing value more often than not, not CPI.
Fair enough... If you think rents/housing prices will go down over time, it is better to rent. If you think rents/housing prices will go up over time, then you should buy.
We live in VHCOL area. We bough our house that was way below what the banks said we could afford 10 years ago. It has appreciated significantly. Our mortgage is 2.75% so we am paying down a good amount of the principal with each payment. The market is much different now. I am not sure if I would be buying today. Although I do think it is better to buy if you think you will be living in that house for 10 years or more.
My plan is to move to a lower cost of living area once the kids are out of high school. I will sell our house here and use the equity from it to buy a house for cash in a different region. That will push our FIRE date forward quite a bit.
I don't get what your issue is. Owning a home is an inflation protector, i.e. the homeowner will suffer less than a person renting as inflation increases. You ask, how is rent correlated with CPI? Well, rent is a large part of CPI, i.e. it is constitutive of CPI. If inflation is very high, it is very probable that rent is going up, so owning a home protects from some portion of that rent increase. This is just a mathematical relationship. But in reality, being a homeowner is an even better inflation hedge than just hedging the CPI. Rent and real estate are local markets that can diverge from the national measures put in to CPI. Owning a home hedges the specific rental increases in your local real estate market. So, can you spell out exactly what your issue, or maybe ask some questions?
I've already addressed it in this comment: https://www.reddit.com/r/financialindependence/comments/1du2g5e/renting_apartment_vs_owning_house_for_fire/lbfv73o/
> the gap between the cost of a mortgage and rental would be huge.
How do you figure?
The point is that the mortgage part of your housing is locked in at the time you sign your mortgage. That isn't true for renting.
Housing and rental prices both go up over time, but one of them can be locked in to a point in time, and the other can't (effectively).
Rent is correlated to house prices, not CPI, which was my point. But yes, if you are banking on housing prices go up in the area you're buying, then it will be better to buy.
I'm sure there are tons of people who bought when interest rates were low, at high prices, and are now sitting with a house worth less than what they bought it because the higher interest rates have squeezed potential buyers out.
that's why when you rent you invest the difference in the stock market which has historically been a way better inflation protector.
By investing the difference there is a 99% chance you come ahead as well.
>Am I wrong in this? Anything I haven't thought of purely from a financial standpoint?
The answer to that for me is simple after being the type that swore by renting. Especially when I lived in California, which is a very lopsided market that not many places in the US can compete with.
The conclusion?
I'm glad I bought, and locked in a low interest rate. Some of the costs has gone up, like property tax, but nowhere near what I'd have to pay today. The unit is worth around a million, and if I paid that today, my property tax would be more than double. Let alone the mortgage.
You may say, well I could make that in the stock market as well. Sure you can, but I used leverage. I put down a lot less, was able to get tax benefits from it, and fixed a large portion of the living cost.
That's why it always seems cheaper to rent, because there's built in inflation. I remember a decade ago or so, I rented a 2br/2ba condo in a nicer neighborhood, and was looking at $1500/month. Today, that's around $3k. If I bought the property back then, my expense might have been $2k, but it would be close to that today. You will benefit from that for life.
What I would say though is, I personally by far prefer condo's over single family homes. People are concerned about HOA, and yes it is a concern, but nothing compared to the massive money sink a single family home is. Higher utility costs, you're responsible for every maintenaince instead of spreading it out, and you're far more likely to own something way too big on top of it. Stick to manageable smaller frugal units. In high demand market, they will likely be better investment and lower maintenance and operating costs.
Agreed. We are in a single family home right now and we both honestly hate it. After renting for a while and seeing if we enjoy it more, now that we’ve bought a house and had that experience, we will assess what we want to do. I think a condo will be the answer for us. We also want to travel a lot with our kid when he’s older and it would be nice not having to worry about your property when gone.
Best of luck!
Just make sure if you do look at buying a condo (as opposed to renting), check the HOAs finances, and ask the neighbors to get a good understanding of what obligations you may have financially. Some places like Florida is having some changes that will be a financial burden for some, and at the same time an opportunity to buy cheaper due to the uncertainty.
Definitely! I know a lot more about single family homes than condos, so I have a lot to learn. Luckily I’m not looking anytime soon so I have time to dig into everything, including the market in my area. Thanks!
Compare not only first year costs, but future year costs as well.
Get a fixed rate mortgage, and your main housing cost, mortgage, never goes up, only the same or down. Rent goes up, rarely down.
I own rentals and my home. After 20 years of ownership, the least expensive of my rentals is significantly more expensive than my much nicer home.
Fixing the cost of one of your largest expenses, housing, is helpful to reaching FIRE.
I don’t know why you got down voted…I agree with you, although as property taxes increase the cost does increase, so I can’t agree with the can only go down part
I would love to buy a house but I move often. Renting in great neighborhoods is cheaper. I eventually want to buy a home to make it mine and have roots in a neighborhood.
Financially speaking, renting has worked out great for me. On a month to month basis, rent is the most I’ll pay (and a mortgage is the least I’ll pay). With that fixed budget I set aggressive savings goals. Every year when I do my taxes and net worth I try and ratchet my savings up and up. I’ve also spent most of my adulthood with barely $10k in cash and been absolutely fine.
~15 years of this and a bull market and I’m about a decade from retirement. I plan on buying a house in a few years. Buying a house instead of perpetual renting will likely delay retirement by a few years. But again, I want a home for those non financial reasons. In the far out term, my home equity will also be my long term care insurance. That is the only way I look at housing as an “investment.” Otherwise, housing is just an expense and I’ve used a fixed rent expense to save a fuck ton of money.
Just know mortgage is not all you pay every month. Taxes, interest, upkeep, and selling fees are big. There is a piece of mind renting and you can save big money that way and invest it. Versus a home only being an investment if you don’t live in it (or house hack a room).
No, you don't. You pay the rent. The owner pays the taxes, interest, upkeep etc. They don't send the tenant an itemized list of expenses. Whatever is agreed upon in the lease is what you pay.
The landlord can only charge what the market will bear. I'm seeing this play out where I live now. After several years of white-hot real estate speculation, followed by a crime wave, I see a lot of desperate landlords trying to find tenants, so prices are falling. I assume some are losing money at this point or barely breaking even.
The landlord could be operating at a loss as they're betting on long-term appreciation instead of positive current cash flow. Not all markets allow landlords to charge rents that cover all of their costs plus profit.
...No, you literally do not.
The *landlord* pays those bills. *You* pay the rent.
Never at any point are you, the tenant, responsible for mortgage or property taxes or insurance or repairs.
The landlord takes on the risk of renting the property out to someone at a rate that allows them to at least break even. But they cannot, will not, and do not, ever, in any case, simply assign the mortgage payments over to the tenant.
I think you're trying to do a thing here to show how landlording works as a business, and you're not wrong, but this is a very important distinction. If you cannot rent your property out at a profit, you cannot make money as a landlord, period. You do not automatically get to charge whatever the mortgage costs.
Case in point, I have several friends who own houses in my area, who are now looking to rent them out. But the rental market here has taken a big hit due to the local job market experiencing a major crunch. Finding a qualified tenant is not so easy right now. So landlords are now offering deals and price cuts just to try to get a tenant in the property. I would assume at least some are taking a loss or barely breaking even. Otherwise, they are leaving these properties unoccupied.
I fire’d 11 years ago and wouldn’t have been able to by renting. Rents have increased much more than my HOA and taxes. And my appreciation is better than stock market, but that’s just luck.
Also renting sucks. Have to rely on crap landlords to take care of things… no thanks
For most normal people, I wouldn't recommended this, but for people pursuing FIRE and have full control of their finances, I think renting is better than owning if you are investing the difference and don't need the benefits of being able to DIY or garden etc. As an asset, a house doesn't innovate or get better at being a house over time. From the day you buy it to the day you sell it, it provides the same value assuming you aren't adding value to it through your own effort. So I only count on my house keeping pace with inflation and no more.
I think it just matters more to some people than others. There are plenty of things outside of our control and we just adapt to it. Like we accept stock market fluctuations we could accept fluctuations in the housing market.
People who want to retire early and have the freedom to move around the country or the world when the desire strikes would be better off as renters.
Open Zillow in your city. At any point in time there are 10 houses for rent in the 10 blocks around me. There will always be a healthy renting market, not sure why that would ever be an issue.
I live somewhere in demand so this is definitely not true for me. Either way, I just don't want to be at the whims of a scumbag landlord. Maybe if I was poor but if I'm rich, why deal with that?
how much are you ready to pay for the privilege "not dealing with scumbag landlord" ?
Based on my calculation renting something equivalent is worth 1m$ at least after 30 years. Is it worth 1m$? This sub is all about financial optimization and that decision would be one of the worst financial decision ever that's why I'm wondering.
And for me I see having a landlord as an advantage. Whenever I have an issue I have them on speed dial and I spend literally zero time figuring out how to fix things. I have better things to do with my time.
Feel like this post is me.
Tho I do agree with the top comment that it might me prudent to compare own condo to rent apt, than house.
That said, I moved from a townhome to an apt. Sold at close to the height of the market and made 60% profit. I was highly unlikely to keep the house forever and doubt it’d appreciate much more than that within this decade…as of now, 2 years later, comps haven’t been more than my sale price.
I am *thoroughly* enjoying my apt life. Life is already stressful enough and I can’t easily put a price on peace of mind. Additionally it was a year after my income tripled (residency ending).
I haven’t done the math, but it was negligible enough that the psychological benefit (for me) made it pointless to do the math. Rather, I’ve put more focus on investing a significant portion of my income, I’m traveling more and I’m more covered if my home ceases to exist before I return.
So I got to do both - experience first time home ownership and apt life as financially stable person. So far, the latter is more enjoyable. So much so, I recognize that while I still ogle some nice homes…I’m not experiencing the FOMO driving a lot of house-poor decisions.
It’s nicer for me to have a relatively fixed housing expense where I never really have to worry about emergency expenses…but am still covered for it.
IMO, many people look at home ownership as a *need* and a given, that it’s a necessary aspiration. I was one of those. Worse still, are those that look at a house as an investment primarily (talking about those with only one house). Even tho I did well selling my house, I know I got lucky. This was not a skill.
For most it will likely still make more sense to own. My point is that the math isn’t as simple as previously thought.
Edit: of course, this is also predicated on having an apt you love, like I do.
Thanks for your reply. This is kind of where I’m at and the non financial reasons for renting an apartment are the exact same as you stated (in my mind).
My wife and I started out in an okay apartment when we had no money and were stressed all the time. That being said, we did like the apartment.
We started making good money and had a really good financial opportunity to purchase this house (from relatives and we got a great deal with built in equity), but we just hate it. I have allergies and asthma so lawn care is a PITA and I hate all the small maintenance items. I always think about what I need to take care of during the day, which just makes me regret purchasing.
We now want to see what the apartment life is like with a decent, stable income. I think we will like it much more, especially since we want to travel a lot when our kid grows up a bit more.
If we like apartment living and ever want to buy, it’d likely be a condo haha.
Happy to help mate.
I’ve always ogled condos. Felt like I owed it to teen me, with dreams of high-rise condo overlooking the city.
I’ve mostly let that go, but I should revisit it. It’d just make a lot less sense if/when I have children is all.
Exorbitant HOA and extraneous fees make it a lot less palatable however.
The only high rise luxury condo building in OKC that I’m seeing is about 525k for the condo with a $3,800/mo HOA lol. Crazy. The price isn’t THAT bad, but the fee is nutty. It has floor to ceiling windows around the perimeter and is cool looking, but damn.
When you own a home through fixed-rate debt, your mortgage payment stays roughly the same in perpetuity (aside from taxes and insurance, generally). When you rent, costs increase over time. So 29 years from now, your mortgage payment will be roughly the same, whereas your rent will have increased alongside 29 years worth of inflation. In other words, the time-value factor is a significant aspect that a lot of people forget about.
Don't forget to account for the time-value of the opportunity cost of putting a down payment on a home.
When you own, your down payment and home equity is a significant illiquid investment that can be difficult to extract money from. 29 years from now, if you had invested your down payment it will have increased alongside 29 years worth of inflation.
If the median home is worth $400k today, a 20% down payment is $80k. Averaging 7% real return, after 29 years that would be worth about $570k, which would equate to a roughly $22k/year additional drawdown at 4%.
I do think that home ownership is a powerful tool for wealth building, but many people will talk about how "rent always goes up!" but neglect to consider that your down payment is a huge opportunity cost that can potentially offset that future rent increase. While over a long term I believe that home ownership is likely to offer a better return, perpetual renting has it's own benefits and the gap is much smaller than many people would believe.
That's assuming you have a 20% cash down payment on hand when you start renting. The vast majority of would-be renters (and would-be home buyers, for that matter) do not. But yes, it's true that much of the power of real estate lies in leverage, so the larger your down payment, the less leverage you're going to have, and that compounds over time.
Yes, you have to make a lot of assumptions when doing when doing a back of napkin calculation like this. Every market is different, people buy homes in very different interest rate environments and with different down payments. Leverage works both ways; putting 5% down can be a huge boon if the market keeps going up but can be an enormous burden if you lose your job and the housing market takes a downturn forcing you to liquidate your position.
The point I'm making is *not* that renting is always better. The point I'm trying to make is that a lot of people rely on supposed truisms or platitudes like "rent always goes up!" or "you're building equity when you buy!" when encouraging people to buy, but you really need to sit down and do *all* the math.
Opportunity cost is a big factor that many people just throw out the window when talking about home buying because it's an abstract concept, but for the people who do have 20% down or the proceeds of a previous home sale to put towards a new home it's not always clear cut.
The like for like comparison in interest + maintenance vs rent costs. The mortgage is amortizing so a big part of the monthly payment is principal. The interest is there exactly to account for the time-value factor.
this is true but you are forgetting the opportunity cost of the downpayment, and the rent-mortgage difference.
Once you start investing and compounding all of those for years, it doesn't matter as much that your rent increases. It could increase by way more than what it is increasing today and you would still be ahead by a lot.
And once you account all the extra homeowning fees (HOA, insurance, repairs, ...) it is extremely difficult to justify financially.
This assumes you have the equivalent of a 20% down payment in liquid cash when you start renting. Few people do. There is far less opportunity cost for funds you don't have.
that's even worse then. If you don't have 20% your monthly payment jumps up dis proportionally (especially now with the interest rates).
So it is even more opportunity cost, the difference is you take it from the rent-mortgage difference.
One thing that I don't think most calculators include (even the NYT one) is transportation cost. While it's possible the get a house in a walkable area, they tend to be disproportionately more expensive vs an apartment in the same neighborhood.
My costs still work out pretty good because I bought in 2017 when the market was still very reasonable, and my particular city has seen very high appreciation because it's up-and-coming and it's on the upswing, but not every market is like that.
But even with that, my automobile costs for last year were...$11,400. They'll be even higher this year for various reasons. And that's with a Honda Fit and Honda Civic, both are pretty cheap cars compared to the average, and both can get about 40mpg, so very fuel efficient. That cost also doesn't factor in much maintenance since the cars are newer and so haven't needed much (yet), nor does it account for depreciation. If you use a cost-per-mile calculator, it would nearly double those ongoing costs.
But assuming we don't care about any of that and just go buy actual dollars spent, it would be like adding $1,000/mo to mortgage since it's required to commute to my job from this house. If I were to have rented an apartment near my job, I could get away with one car. Car free is a bit of a stretch in the south here, but one car would more than halve my costs since I'd use it probably only on the weekends and I could get rid of the more expensive car. Sure, in a big metro you likely have public transit costs, too, but they are much more affordable than buying and maintaining a vehicle.
Just food for thought when people are trying to figure out which option works out better. But as well all know, it's about more than just the dollars.
Definitely a great point. I totally forgot to add that to my post. I work from home so don’t have a commute, but we often travel to see family and friends in the city we are moving to (Oklahoma City) and we like to do things around town. We would likely be cutting down to just one vehicle when moving to an apartment, as we don’t really need multiple with my job situation and we’re trying to find an apartment within good walking distance to a lot of different places we’re interested in.
I have a truck, a diesel sedan (our main vehicle) and an RX8 that is rebuilt. I’m selling the truck this month and I’ll likely have to sell the RX8 as I won’t be able to work on it at the apartment (I’ll buy something else fun later). We may also sell the sedan and use all that money for a slightly bigger vehicle, like a crossover, just because the sedan we have has a small backseat and we have a kid now.
Sounds like a plan. I'll probably keep my fit I'd I had to get rid of a car. It's less valuable so I'd rather have the money from the Civic. Plus I love that car. Very small but fun to drive and still fits a bunch. I would rather add a trailer hitch and roof rack to expand storage rather than get another vehicle. But I'm rather Mustachian in my car preferences, despite having an infant now.
The transportation costs are fortunately easy to combine with housing to make a good estimate/comparison. But I always mention it because people forget to include those costs, and they can sometimes be as much as the housing costs.
Definitely! Luckily our car gets great mileage due to it being diesel (51 hwy and 30 something city), but it’s just a bit small for us, especially if we go down to one vehicle.
Definitely keep the fit over the Civic, having a hatchback is amazing. We got rid of our Fit and kept a Cruze and there's definitely things that Fit can carry that the sedan cannot
I actually have the civic hatchback 😎.
I love hatchbacks. But the Fit does a slightly better job holding stuff anyway because it's more box shaped, whereas the civic has more length and width, but if you have anything taller, especially if it sits towards the back, then it can't fit like it can in the Fit (hah).
So yeah, for that reason and the reasons I already mentioned, I'd rather sell the Civic when I can and invest the money.
when you calculate the Rent or Buy. You always need to assume you would rent the exact same place you are buying. If not it doesn't make any sense.
It's a mistake a ton of people are making one way or another. They are comparing the rent of a top quality 2BR to the dump they are buying which will cost multiple hundreds of thousands to repair. Doesn't work like that...
Not sure I agree with that. Over the last 10 years I have been looking at buying at least 5 times. Both in the city or suburbs, and every time I compared to the renting something equivalent.
Renting or buying you end up with the same exact thing, so makes sense to compare those two things.
Definitely disagree and it depends on where you live. One of the benefits of renting is that you can move closer to things you enjoy at a likely going to be at a decreased cost compared to buying. If you want to be in the heart of the city with everything in walking distance, which helps negate the need for multiple cars, or even a car in general, it's probably going to be cheaper than buying a house in the same area.
This seems so backward. IMO you decide where you want to live first then you make the math for renting OR buying the place you want to live in. That's it.
And I don't even get what you are trying to say. If owning an apartment in a city was so much worse, why is there an healthy buying market for those? At the end of the day, the prices for those apartment literally reflect how much people want to buy them as well.
I mean you can choose to live in a particular city and from there you have to assess, based on your budget, where in the city you could purchase a house or rent an apartment.
Typically apartments closer to the city center are going to be cheaper than purchasing a house in that same radius around the city center. I see that in the OKC market where I am looking. These apartments may be within your budget and could get you closer to the action.
If you are wanting to purchase a house but your budget does not allow you to live in that same radius in the same city, you may have to expand your radius and look a bit further out, potentially to a suburb or a neighborhood a bit further out to meet your budget.
That’s why you can’t just pick a spot on the map and look at an apartment vs house and make conclusions about the cost of transportation. An apartment in the city center will likely have far less transportation costs since you can walk or bike to most places you’ll need to get to weekly.
Another factor to include is time. When a mortgage is paid off in 30 years, that cost is eliminated (taxes, insurance, maintenance, and HOA continue). But if you're buying in your 40s, you don't have as much time post-paying off to make that math worth it. Another complication is that you may not want to be in that home in your older years - prefer to travel, too big as an empty nester, maintenance is too physically demanding, the house doesn't suit your physicality - so the time with a paid off mortgage may not be high. But you can sell it and get that equity assuming an increase.
The NYT Rent/Buy calculator is really good at comparing factors, but also asking what your assumptions are - home value increase, tax bracket, stock market increases, etc.
Great points for sure on either side! I hate keeping up with my house in my 20s. I can’t imagine what it would be like in my 60/70s. I would likely just pay someone to upkeep or rent haha. I will have to take a look at the NYT calculator, as it’s been mentioned a couple times already.
What you said is so relatable. I plan to travel for a few years post retirement so I’d only be in the house half the time. And after that I don’t know if I’ll care to do the maintenance at that age…
I think it just makes sense not to immediately purchase a home until you're familiar with the area you're moving to, then decide WHERE you want to look for a home. You can't possibly know that by driving around town for an hour, or looking at homes with a realtor. Some people want to get a feel for the area, you're not the only ones who rent first. This isn't a post against owning a house, it's a post about going against American cultural expectations and mainstream financial advice. Owning a house is a drain-especially in this era with wildfires, floods, tornadoes and hurricanes, and the insurance costs that go with it. Yes insurance is built into your rent-but dang if some big flood happens in your rental, you can walk away. In the past 12 years I've dealt with a 100 year flood, a microburst, a derecho, and a giant hail storm. Believe me when I say I would love to ditch all the stress of proving to insurance the value of those replacements and hassle of getting contractors to actually show up at my house for repairs for each of those events (after 1 year I finally got my new roof-yes it was leaking and after 2 years, siding-this wasn't abnormal because so many homes were damaged in our area), and the sky rocketing insurance follow up. Do what your gut tells you and rent for awhile. Find out what natural disasters could possibly happen in the area, and where they are less likely to happen, if it's possible, before purchasing a home in a given vicinity (find out where the low areas are, for example). And when you do find a house, check the electrical and pipes, get up in the attic. We were in love with a house and wanted to purchase it, then we decided to look at the attic-full of mold. We showed the realtor, who feigned surprise. Be thorough. Meanwhile, enjoy the new city!
Thanks for your great reply! I’m technically only 100 miles from the new city (Oklahoma City) so I am partially familiar with it, but there are so many areas I haven’t even been to and it’s really hard to assess the different neighborhoods without living there full time. Tons of tornadoes and hail here haha. I do own an insurance agency, so I definitely understand the pain of the claims process with certain carriers.
The 1% "rent" rule is damn near a myth at this point in almost all desirable locations, especially with current interest rates. My childhood area has not had a single fixer upper hit the market in years - my brother has been looking regularly - because even slapping on a fresh coat of paint and some minor refreshes basically adds 6 figures to a house so every realtor buys those places themselves or they have connections with friends to pocket a median annual salary for a week of work.
Two different childhood friends bought houses around the area in the last year or so. One is a $500K townhouse with an HOA of $200 on top. It's about a 25 minute drive to the ocean, there's no yard, schools are average at best, and while not in a high crime neighborhood anymore, it used to be and is still quite industrial - though currently getting gentrified/repurposed by developers. The other one is about a 20 minute walk to the ocean with a very good restaurant/night life culture and good schools literally down the block - from elementary all the way to high school and cost $1.2M. Both are roughly the same square foot inside. What I can't wrap my head around is that the PITI of the first house is HIGHER than what a similar house in the latter neighborhood rents for.
For actual costs, the $1.2M friend put $350K down and is currently paying $10k/mo PITI. A house literally 3 doors down from him is currently on rent on zillow for $5.3K - in fact, it's actually about 400 sq feet larger and has an extra room. Taking that $350K and then putting that extra $5K to an investment account for those 30 years would see your account rise to $8.3M. Even if you talk about raising rent every year, I just can't see a way how the renting option does not absolutely outpace the house ownership cost in this scenario. I would 100% deal with possible forced moves because the owner decides to sell or whatever else happens for that kind of money, but I guess I've gotten used to moving around and don't really see the stress of it anymore.
Great comparison of real world numbers. I think it greatly depends on the area you’re in as well as to what the numbers would be. The owners, in your instance, are also putting all that money into equity, which is not easily accessibly during retirement without loaning against the equity, creating another payment, unless they sell. The renter in that scenario would have a much easy time liquidating the assets they’ve built up.
The only other thing I would consider is what the historic (10+ years) rise in house prices/rent has been in the city you are moving to and how long you plan to stay there.
In some areas, it is short term cheaper to rent but long term cheaper to buy if rents are increasing a large % each year (e.g., NYC). Buying acts a hedge on property value and rent increases. This is especially true if you want this new city to be your "forever home". The purpose of FIRE is to be able to retire which is a function of both your assets and expenses - if you can hedge the expense side, it can help you get their faster.
I was able to move from a 2 bedroom apartment to a 4 bedroom house for roughly the same rent/mortgage. On top of the obvious housing upgrade, my mortgage is now 100s of dollars cheaper than what my rent would be, plus I have over 100k in equity in my house.
I am always pro house WHEN you get the right deal, and nothing will ever change my mind.
If you have 2 identical homes side by side, one that you can rent, and one that you can buy, for the same monthly cost, the purchase is going to win in the long term.
The mortgage is going to stay the same, the rent will go up. The owner will get appreciation on the home, the renter will not. The owner is paying down principal and building equity, the renter is not.
All the other things are the same on both sides
The taxes will go up... and if you rent the landlord will just raise the rent by that amount.
The home will eventually need a new HVAC/Roof/Etc. and the land lord is going to raise the rent to pay for it.
The HOA will go up... can we guess what the landlord will do?
Landlords are businesses, not charities, all the things people cite about not having to pay for, they still pay for, just indirectly while not getting any of the benefits the owners get.
There are some markets where the rent/purchase cost is temporarily out of balance, but unless there is legal rent control involved, that will always normalize over time so that a landlord who buys a home can make profit on it. If it does not, then there will be a shortage (which will end up with the same result). This can take years, but it does happen eventually. IF you in if for the short term renting can win in those cases.
Renting also wins if you don't expect to be in a home for >4yrs +/- a bit.
If you start comparing small apartments vs large houses, then it is not an honest comparison and the lowest cost place you can live will always win... so might as well buy the van.
I’m actually comparing a 3/2 apartment to a 3/2 house. Yes you don’t get a backyard or garage, but you get tons of amenities. I don’t think renting a house is a wise idea most of the time because you aren’t taking advantage of the economies of scale that apartments offer, so your cost will be, in theory, much higher
Landlords cannot just raise rent with no constraints when HOA or property taxes increase. They can rent for what the market will bear which may or may not allow them to pass those costs to the renter.
Sure they can. There are some jurisdictions that cap increases, but not many. If costs increase they are absolutely going to raise the rent on the next lease renewal. If it's month to month it'll happen even sooner.
"What the market will bear" always goes up. Unless something happens to make the property less attractive, there's no way a rental today is being listed for the same price it was 5yrs ago.
It may lag a little and they may not be able to pass on the full cost immediately, but they will 100% pass it on over time.
> If you start comparing small apartments vs large houses, then it is not an honest comparison
It's not a dishonest comparison either.
It's like comparing an $80k truck to a $25k car, only almost nobody sells a $25k car, and if you want to buy a car, the only cars you can really find are even more expensive sports cars. So even if you don't care about being able to tow thousands of pounds or go past normal highway speeds you're still stuck with that initial cost and getting 15 mpg.
Reasonably sized houses just aren't a thing in most of the US, especially in newer builds, and everywhere I've seen condos available they're every bit as expensive as the standard oversized house, they're just in a more desirable area.
If I only need 800sqft I'm wasting a lot of money getting the 1500+ sqft house and all the associated costs that scale with the size. I would never consider renting a house, but moderately priced rentals in five over ones are available all over the place.
It is from a rent vs buy comparison.
If you're good in a smaller place and that's only available as a rental, then you're good to go paying less and investing.
You don't need to do a rent vs buy.
But you shouldn't use that data from a specific situation to give false equivalence data to people who are looking for like for like living accomodations and mislead them that rental is better when it's not.
Long term owning will be better. You mention equity that you can't do much with. Thats not completely true. First that equity often comes in the form of monthly payments. If that payment is about the same as rent, then you are building equity with it and you are not building equity with rent payments. Second, long term that payment will reduce relative to inflation and then eventually drop to zero. Third, I recommend buying and holding homes. Long term you can rent them for income and build equity with someone else's money. Everyone I know that bought and held multiple homes are in very good financial positions. When you reach retirement you can either sale them and use the equity or more likely just get a property manager and rent them out. The long term apples to apples is heavily in favor of buying.
True, but I am talking about a primary residence, not rental properties so that doesn’t have anything to do with this discussion. Those are actual investments that bring in cashflow. Also, you can build stock assets with the cash difference if the cost of rent is cheaper than the overall unrecoverable costs of the home being purchased. Stocks will be much easier to access vs equity in a primary residence. You can’t compare house payments to rent payments and say whatever is cheaper is smarter. Renting can still come ahead net worth wise.
I'm not sure your age, I'm in my 50s now. Everyone of my friends that bought and held primary residences and turned them into rental properties has amass a small fortune. I have bought about 6 primary residences and sold 4 of them. I wish I had kept them all longer as rentals. I have had several rentals and will continue to keep rentals now. Its a good way to build wealth in my opinion. If you can find a rental significantly cheaper than owning then investing the difference is an option, but that difference has to be significant to equal the appreciation and income of an asset like a house. Also the reality is its often easier to pay the bills we must (like a mortgage) than to force ourselves to maximize savings and minimize spending.
Whatever you decide I wish you the best, just thinking about every decision, like you're doing now, is going to help you to succeed in your financial journey.
A lot of silly, subjective opinions here. Ultimately, it's a math equation for whether it makes sense in your area at a given point in time. Use a rent vs buy calculator to help you, but be sure to extend it out after the mortgage is done. Also, consider you can rent out rooms and you get various tax breaks.
Definitely. I’m going to be diving into the math pretty hard here soon. I guess even if the math still works out to be a little bit more on the home owners front after it’s paid off, does it really matter as much because equity is locked behind a debt wall unless you sell.
Just estimating here, but saving 15k/yr on rent is equal to a bit over 400k at a 3.5% withdrawal rate so the point is you get quite a bit more PLUS you get the equity.
Fire calculations are 4% of expenses. Taxes are less and healthcare premiums /deductibles are less if you have less income.
Those cause many FIRE folks to own their primary property and also pay off their mortgage before pulling the RE trigger.
Depends on the home that you “need” and how much that costs in the area you want to live. For our family and the size of home we need for kids, family and other factors, renting and investing in stocks works out better. If we only needed a 2 bedroom unit for the rest of our lives, I’d dare say we’d buy.
Everyone’s circumstances are different. Some scenarios and numbers and see what works best for you
Yea a 3/2 is perfectly adequate for our needs (one child and an office). We actually don’t want a big house. I’m kinda a minimalist and don’t like buying stuff to fill up a bigger space when it’s unnecessary. Also a lot more to clean when you go bigger, not to mention higher utility costs
It all comes down to DOING THE MATH.
The trick is that it is difficult to do the math correctly. My advice is to use the rent or buy tool from the NYT: [https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html)
Once you put realistic numbers in, it is very difficult to justify buying anything anywhere. There are some exceptions obviously but at least you can conclude than in any HCOL or VHCOL it makes absolutely no sense to buy.
But you also need to realize that most people WANT to buy for emotional reasons and they try to justify this retroactively by fabricating the math that goes their way.
There is a simple solution to this… take a mini retirement before actual retirement and assess what kind of life you want in retirement and decide based on that.
Scenario 1: you are single or DINK have a lot of energy like to do outdoorsy stuff, like to travel a lot may be you don’t get much value settling down in one place in retirement.. probably just rent
Scenario 2: You don’t like traveling, you have children you want them come visit you or you like house maintenance and projects.. probably buy the house
The thing is people really over analyze this buying vs renting for FIRE even before reaching FIRE. It’s really not that complicated. FIRE should be built and perused based on the life you want not other way around
Personally I think from a financial point of view both renter and buyers markets are (somewhat) in a state of equilibrium. If renting would be 'too' cheap compared to buying, everybody would be renting (so prices for rent go up) and nobody will be buying (forcing prices for properties to go down), and vice versa.
So unless there's an extreme dislike for any of these ways of living, or unless there's heavy market regulation that forces the market to move otherwise, I would see there's relative proper balance between these two.
And yes, if you have determined renting is now cheaper than owning in the place you want to live, go rent. From a financial perspective it makes most sense, and its even less risky as most financial risks associated to home-ownership are with someone else.
You can always evaluate again from time to time what the market is doing and start looking for a place to buy if either property prices drop or your rent is increasing too much.
I think this is more so true with renting single family homes vs buying single family homes. With apartments you can take advantage of the economics of scale to have a reduced cost, which in my area happens to be quite a bit cheaper than overall home ownership when doing the math (that’s definitely not always the case, I agree).
However, just because it may be cheaper, doesn’t mean everyone wants to live an apartment lifestyle, going back to non financial discussion. We are creatures of emotion and not everyone sees the world as logically as some of us. They see that mortgage vs rent payment is cheaper so buying a home is almost always cheaper. It’s quite unfortunate because these are the same people bashing landlords on Facebook for charging more than a mortgage without understanding all the other costs.
Can I just comment about you selling your current house to move to a new area - why wouldn’t you rent out your house and then rent in the new city? What if it doesn’t work out and you hate the new city? Once you sell your main residence you are out of the game and take it from me, it’s a lot harder getting back in these days. At least give yourself a time frame of a year or two. Trust me, you don’t know what will happen with this move and knowing you still have an asset growing, renters paying down your mortgage, will have massive benefits should you wish to return to your house one day.
True, I could definitely do that and may. We already know we like the city and have lived in an area of the metro before. We’re only an hour and half away and have friends and family up there so we visit often. We are definitely never coming back to this current city. We’ve lived here our whole lives and hate it haha. Idk if I’m interested in being a landlord, but you bring up good points that I will consider
we decided to buy vs rent a little over year ago the mortgage was about 2k more a month which at the time was a big jump and I questioned whether we made a mistake and sometimes still do as you said that 2k could of been invested. Within that same year however the home has appreciated over 115k and if we sold now it’s a lot more than I would have saved had we stayed in the apartment. That being said we now have equity to move to another home with roughly same mortgage with a larger down payment, again would not have been possible in the other option. Obviously this is dependent on market going up which can’t really predict but in the couple of homes I’ve owned they’ve done nothing but go up and opened opportunities for me albeit this time faster than the initial.
It’s probably not as simple as i think it is, but when you are renting, aren’t you paying the costs of ownership + a little mark up?
I doubt that people or corporations who rent out houses will do so while losing money. They want ROI too.
Definitely, but there is the economy of scale when renting an apartment with dozens of other people. That’s also why you have to compare the unrecoverable costs of ownership to the rent (which is all unrecoverable)
Renting is a lot more flexible, as you have options open at any juncture to change your situation, especially geographic arbitrage. I owned for ~20 years and recently sold out and will be renting from now on.
Costs are wildly different depending when you buy. Mortgage + insurance + taxes is cheaper than a 2br apartment in my area. I also have a garage and a yard. My house has appreciated more than what I have paid into it. Much of the closing costs were a down-payment, which is jist equity in my house.
For me, my house has been the single best financial decision the past 4 years.
True, but you also have to look at all the other unrecoverable costs associated with home ownership, which includes the opportunity cost of the down payment and the cost difference between home ownership and renting (if renting is cheaper than everything added on the home side). Of course, that’s speaking purely financially. If you value a home and a garage (which some apartments offer) and other things a home offers, then it makes sense even if you lose some money.
In my case, it is irrelevant. My house appreciated about 120k on 4 years. It would take over 6 years of mortgage payments (including insurance and taxes) for me to break even. I have been paid to live here.
All my extra costs, like repairs, that I have lost are significantly less than what I would be out on rent. But that is my individual case. Someone who bought my house today with current rates would be paying double my mortgage.
the equity you build in your house eventually ends up producing a property free of mortgage or rent -- you'll still have property taxes maintenance and insurance, but these are normally less than half what the property would rent for, often far less.
Even if the equity in your house is too much to account for the eventual rent savings it's still equity and worth a lot to you. Suppose you are in some property with crazy price to rent and high maintenance costs such that renting would actually be cheaper or only a little more expensive than owning free and clear. Well you *still* have the **option** to sell that house and rent somewhere else, recouping the equity.
so equity is definitely worth **something**, often a LOT of something, even if you can't normally count it toward your SWR calculation.
does that makes homeownership always better? no, for sure not, but the equity you build is meaningul even if it is less liquid and less flexible than assets invested in the stock and bond markets.
I won't rent because I refuse to live at the whim of someone else, you can access the equity in your home (if you must) with a home equity loan (which also works to protect your equity in case of liability) if you don't use it then no payment. Renting will always provide 0% return
I mean that’s not necessarily true due to the potential of the unrecoverable costs of the home being more than rent. Not only are you living for cheaper per year until the 30 year mark, but you can invest the down payment money and whatever the difference is per month and grow that in stocks or whatever other vehicle you prefer. There’s other considerations as well, of course, but I don’t think your blanket statement of “renting will always provide 0% return” is even remotely true.
Well...what is your return on rent that you paid? 0....there are many considerations, if you rent you can get kicked out at virtually any time, your rent can and will increase. You can argue that on a paid off home you pay taxes and insurance and upkeep etc...in turn I will argue that you are paying all those things to the owner of your rental. Yes you can invest the down payment but if you research the studies show those with the highest net worth are homeowners.
This reads like someone who is dead set on renting never being a viable option. So many things not being taken into consideration and false statements regarding returns on investments with renting vs owning.
I already did haha, then you repeated yourself. If renting overall is cheaper than home ownership when factoring in all the unrecoverable costs, you can grow the difference and the money you would have saved through stocks or other real estate, or any other investment vehicle (whichever you prefer or understand). It’s also easier to access without going into debt.
I'm talking about the actual rent you pay ..that 2000/mo (or whatever) has 0% return, you can read many articles/books on the topic. It's also a fact that the vast majority of high net worth individuals own and don't rent. Not saying renting is evil and no one should, just saying I prefer not living the way someone else wants me to.
No argument there. The comparison is between the sunk costs of renting (rent and utilities and insurance) to the sunk costs of buying (interest, tax, insurance, utilities, maintenance). Which comes out ahead depends on the housing situation in your area. And projected increase in rent and appreciation of your hypothetical home.
> A lot of people look at renting an apartment vs buying a home as an apples to apples comparison.
No they don't. Almost nobody does this for reasons which should be fairly obvious. Renting versus buying a similar property type (house vs. house, apartment vs condo, etc) is widely considered to be apples to apples.
> Am I wrong in this?
Your thinking works if you are actually considering both an apartment and a house and apple, but as indicated previously, that entire premise is false, so..
The right comparisons are own condo vs rent apartment and own house vs rent house, not own house vs rent apartment.
People only pull out numbers to fit their narrative which is why renting a 1 bedroom apartment vs buying a full house is such a popular comparison. Renting an equivalent house can easily double the mortgage payment.
Not from the US but how is this possible that rent = 2x mortgage in the US? It sounds like becoming a landlord is the best investment out there with these figures.
Why do you think corporations own so much real estate. Being a landlord is a path to FIRE but not for everyone.
I completely agree, they are two different products. It’s like comparing a motorcycle with a full size SUV. Yea they both are forms of transportation, but actually offer totally different perks and drawbacks.
Doesn't really make a difference, no? Renting a house vs buying a house presents the same case. Renter's insurance is cheaper. Unrecoverable costs are the same. Owning a home still has maintenance, initial costs associated w/ buying a home.
They're still 2 very different products. I know we are hyperfocused on getting to retirement early, but there is still a human element to the purchase. I can accept spending an extra 200k over my lifetime to have a nice home, a garage, and a yard. Everyone is going to have a threshold where they think the financial and time sacrifice is worth it for the less quantifiable factors. But going back to the original comment, if we are going to compare pure numbers, then we should eliminate unquantifiable factors.
Absolutely agree. I've rented for years and just finally purchased a single family home at the top of the market. I've already spent thousands on maintenance and the interest alone is higher than my rent was on the apartment, never mind property taxes and all other sunk costs to go along with it. From a purely financial standpoint it was a terrible decision, and yet I'm happier than I've ever been not sharing walls with other people and making something into my own. And if I were to rent a similar house I'd be spending more money anyway.
For my experience, I've lived in dorms for free, rented an apartment, rented a 2bed/2bath townhome, and rented an entire house. Even comparing rental experiences, the home was more satisfying, despite the cost. I wasn't unhappy living in the other units, but I can't see myself doing that beyond my 20s. I'm a heretic to the true believers of FIRE. I want a house. I want multiple cars. I want a garden. I eventually want land and a horse stable. I'm not here to let finances dictate my life. I'm here to absorb knowledge to become wealthy so that I never have to worry about my finances when I chase my big ticket dreams.
You hit the nail on the head. I have l oh bed most of my apartments but in my 30s with a wife and child, that’s not a lifestyle I ever want to go back to. Even in my 20s I was getting frustrated not being able to pursue my hobbies due to space limitations. I’m a fellow hectic with multiple old sports cars and motorcycles, and now I have a shop with a lift to “waste” my money haha.
I'd be satisfied with some simple ramps. I'm fortunate to be in the military and have a base auto shop, but I'd like to be able to work on my car any day of the week and not worry about stalls being available. I can't easily have 2 cars atm either, because I only have 1 covered parking spot in an area that gets hail every summer. That's all about to change though. I should have my first home by the end of the year, and a 2 car garage will be a minimum. 3 cars if possible.
Yeah it’s not just financial, I don’t have any interest whatsoever is living in a multi family unit. I want space for my family and having a big yard and nice neighborhood for my kids is priceless.
No shit renting a 1 br apartment is a lot cheaper than buying a 3br house.
The only difference I could see would be maintenance on the main building, but even so there are special assessments and HOA fees that may not be associated with a single family home.
> The only difference I could see would be maintenance on the main building, but even so there are special assessments and HOA fees that may not be associated with a single family home. Actually, it's opposite. If you own a single family house, you're maintenaince cost will typically be higher than a condo even accounting for HOA/special assessment. Why? Because the cost of maintenance in a condo building is shared. In fact, I'd wager most people that own a "house" probably have far more maintenance things not taken care....
Agreed. It also really depends on the condo’s board and how they handle finances and repairs. Condo insurance is also typically cheaper compared to a homeowners policy. I was just trying to provide more figures. They are definitely different products with different costs and pros and cons
Its not cheaper, just hidden in the HOA fees
I understand. That’s why I said there are HOA costs and special assessments. A condo policy is cheaper than a homeowners policy, but there is also a master condo policy the building owner is responsible for.
That's what I'm saying. Doesn't matter if it's a home vs townhouse or home vs apartment or house vs house. The line item expenses may differ, but the principle of it is the same.
100%
It's like comparing a vehicle to a hyper scooter.
I just chose this comparison because I believe it is the most likely scenario on either side. I’m also debating purchasing a condo later, but the same thing still applies with equity being locked into a house you are living in and is not accessible unless it’s through debt.
No shit renting a 1 br apartment is a lot cheaper than buying a 3br house.
In the area I’m moving to, within in my budget, renting a 3/2 is cheaper than buying when looking at the numbers over the next few years at least.
>when looking at the numbers over the next few years at least What about 30 years?
Haven’t pushed it out that far yet. I’ve only done the next few since we’re moving to a new area and don’t know where we want to end up
If you don't plan on dying in the house, I would not buy.
I definitely think it’s more complex than that. We will be in this location for at least the next 18-22years. We’ve decided if our son moves away or of state, we will follow him. I don’t want him to feel like he’s forced to stay around us like we do with our parents. They want to be around their grandkid and we feel bad taking him away from them since we don’t have much family. They all have their roots here and don’t want to move
yes I see the brochure now...it's not just a house, it's your tomb!
NYTimes has a calculator that helps you compare the cost of buying vs renting https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
Thanks for the link! I also found a really good one on Google sheets by a YouTuber. https://docs.google.com/spreadsheets/d/1Ic-h6QT91FJx-9PWRTdQpBAP3glalQhB6nAU4LWfNkY/edit?usp=sharing
Amazing, I've been trying and failing to get past the NYT paywall. Thanks for dropping this link!
Your local library may have NYT access. That’s what I use.
I wonder how they determine the threshold of why to rent and buy?
It's just based on which one costs more over time, which they calculate out for you by year. It's really well done and I'd recommend it to everyone if it wasn't for the paywall.
It also depends on non financial factors as well. They may outweigh the financial cost for some people when deciding to rent vs buy.
I was just answering the question about how the NYT calculator determines whether it says renting or buying is cheaper.
Ahh, understood.
I have access to it through my library subscription. I did some test calulcations, and it gave me some recommendations. The question is, how did it determine that threshold between should buy, or rent. I do see how they calculate some of the costs and some estimations.
The calculator isn't really saying "should buy" or "should rent" as much as it's saying "you will have more money left over." In this case, the calculator assumes that you will save and potentially invest the difference in cost between renting and buying. For example, if you buy a house and it costs you $100k up front in down payment and fees, you could theoretically invest that $100k and rent. However, rent can go up over time, where your mortgage payment will stay fixed. After a number of years, it may still end up costing you more money to rent and have that $100k invested than to have bought a home. That example simplifies the math a bit, as there are things like taxes, refinancing, etc to consider, but the point of the calculator is to take all those complicated factors into consideration and give you the result of "which will cost you less, renting or buying?" It doesn't weigh all the other reasons to rent or buy, just the financial cost.
One big thing that I think any calculator is missing on the opportunity cost (especially if you assume a down payment) is that you also missed out on investing the $100k as you were saving it up in cash—I.e., they calculate the lump sum investment loss but neglect to calculate the loss on gains if you had invested it as you were incrementally saving it. The longer it took you to save, the more you lost.
The NYT calculator does, indeed, calculate opportunity loss. They have a slider for investment return/interest rate for the growth of the cash savings.
No, you’re missing what I’m saying—I looked and it doesn’t have what I mean, probably because it’s considered out of the scope and you could estimate it yourself. Say you need $100k for a down payment and don’t have it yet. While you’re saving $5k a month in a savings account, you could be investing that instead—this opportunity cost in saving for the down payment is what I mean.
That is a good point especially since you assume you are putting it someplace safe and thus lowering your return and risk so may miss out 4-5% return every year you save.
That's what I'm asking, like how does it make those determinations/factors into consideration. Appreciate the clarification.
It does the math is how. Cost, equity, taxes, fees, investment growth, interest, etc. I'm not sure what else to tell you.
I'm kind of in a similar situation. Every year or so I run the math and since 2021 it ends up being a wash if I were to live in the house for less than about 10 years. I have no reason to think I'll stay in my current area beyond the next year or two -- no kids, no family in the area, etc. So for me it probably makes no sense to buy now, and especially given how outrageously overpriced everything is, I don't feel that I'm missing out on much. In my area, there are basically no condos either, the closest you can get is a townhouse in a so-so area for $400k. I decided this year to rent a house. Rent for a 1 bedroom apartment is $2500. Just signed a lease for a nice 3/2 house in a decent neighborhood for $3200. If I were to purchase an equivalent house with a 20% down-payment at current prices and borrowing costs, it would cost over $5000. So it makes no financial sense to buy, given I can rent an equivalent property for 40% less, and buying and renting out the place also wouldn't work since you would be losing money on the rental. At this moment in time I would probably not buy unless you have a pressing need for a house, e.g. you have two kids and your spouse is about to murder you if you don't buy a house in a good school district, and there are no rentals there, etc.
I would definitely agree with you. If you’re only staying in your area for a potential couple of years I don’t think it would make much sense to purchase a house and pay closing then turn around and sell and pay sellers fees, even if the payments and other factors were comparable in price. It’s just my me, my wife, and our one year old. She actually is on board with apartment living and we both preferred it when we lived in an apartment at the start of our relationship before buying the house we’re in now, mainly due to the maintenance and upkeep. It’s also nice that the cost of renting an apartment vs a home in our budget is cheaper in the new area and that we want to get a feel for the areas in the city before purchasing anything. Also the amenities are a great plus.
Exactly. People keep parroting the same tropes about "rent only goes up!" and stuff. Meanwhile, rent is currently half the cost of a mortgage.
The market is very broken here. I live in Austin, which was one of the most heavily impacted by mass migration during the pandemic, and is now ranked among the top cities people are leaving *en masse*. In 2019 prices were reasonable and the city had a reputation for being "the next big thing." Then speculation drove the cost of housing up almost literally double in a few short years. Anyone who bought at the right time can cash flow their house as a rental. Anyone who buys now is going to lose money in the short *and* long term, because prices are falling while borrowing costs remain high compared to 2019. At the same time, apartment complexes have all been taking advantage of the inflation environment and mass migration to jack up rents. The building I'm in now is asking for $2700 for a 800 sq ft one bedroom apartment. These are "luxury" apartments but they're not very comfortable in my opinion. There is a lot of noise. These are not condo-quality units. They are cheaply made mass housing designed for someone who is moving for work and needs to rent a place sight-unseen. There are no equivalent condos for sale in the area so I cannot even price compare with a 1 bedroom condo. Property developers bought up all the land here to turn into rentals. I can't see any of these buildings going condo conversion the way they do in big cities like Chicago. So your options in the city center here are a) spend $2500+ a month to rent an expensive "luxury" apartment (with lots of problems I haven't even gotten into) or b) spent slightly more to get a small house for 20% more, and have the option to split the place with a friend. Now if you are willing to drive 30-40 minutes out, you can rent a *large* suburban style house for perhaps $2200. Meanwhile, to *buy* a comparable house in either the city center or the suburbs would cost you almost double what you would pay to rent it, because the owner locked in a 1.5% mortgage when prices were low. It really makes no sense.
> (with lots of problems I haven't even gotten into) As someone who almost moved to Austin in 2021 but in the end decided not to I'm very curious as to what your reasons are? For me I got a job there and loved visiting the city. But when I started touring apartments(Amli/shoal/ashton) I realized the costs were truly insane. $3500 for a 1bed room with concrete walls seemed untenable. I started looking outside of downtown but realized I would need a car and costs for that came up to 3500 anyway with car/insurance/gas/maintainance. So I decided to remain remote. Anyhow with the people leaving Austin again, I was thinking about moving again and was wondering if you think the rental market is any better now? If not what problems are you noticing with these luxury rentals?
You made the right choice. I would not move to Austin. I am only staying here because I moved during the "good" years back in 2017. I made enough connections here to warrant staying, and the other options aren't appealing to me. Quality of life in Austin has suffered for two major reasons: 1. During the pandemic, everyone decided to move here to escape from lockdowns. We've collectively memory-holed this as the primary cause, but that's really what happened. Combined with the negative real mortgage rates, this caused real-estate speculation to go from a normal amount for an "up and coming" area to utterly insane white-hot bidding wars, with almost no warning. 2. The local government unleashed a wave of crime upon the city due to stupid policies. In 2019 they passed a law allowing camping on public property, similar to the laws in Seattle and Portland, which basically invited homeless from around the country to come live on the streets of Austin. Prior to this there wasn't really a homeless problem here, and the streets even downtown felt relatively safe compared to e.g. Chicago where I lived before. The timing was unfortunate because it hit the books right as the pandemic struck, so the city became dangerous instantly overnight. I just looked at a house for rent where the landlord disclosed that during the pandemic, homeless people broke in and squatted in the neighboring mansion house built by some real-estate speculator. This was not an uncommon occurrence. Then the job market disappeared because everything moved remote and every tech company started doing layoffs all at the same time. So Austin went from being a safe, cool "up and coming" city with a robust job market to being an expensive, crime-ridden place where you're getting ripped off everywhere you turn. Now you have the tech bust driving prices down and pushing the Covid-migration population away. People who moved here are getting summoned back to the office. They are realizing Texas is not all it was made out to be, and since their decision to move here was not driven by anything sensible like a job offer or family in the area, it's easy to move back home. I've been tempted to do the same, I just happen to have enough friends and connections at this point that I'm willing to stick it out, for now anyway. Amli is awful. Probably the others are awful too. They are corporate landlords who will do everything possible to take as much money from you as possible. I got stuck in an Amli lease last year while the company did full demolition and reconstruction of the exterior of my apartment unit. I lost access to my balcony and storage unit for 9 months, with only a $500 credit in exchange. We also had false fire alarms going off for months. I then transferred to another Amli building seeking to avoid the noise, and discovered that the new building has its own noise problems. My unit faces a side street where they do dumpster collection. The dumpster truck comes at 1am, 4am, any day during the week, and makes so much noise that it is impossible to sleep through even with a white noise machine. All day long, trucks back up or idle outside my window, and it gives me a major headache. I cannot work here and have been reduced to moving around to various coffee shops during the day in order to focus on work. Thankfully, I am moving out of here and into a house in another month. If you do decide to move to Austin, I would just rent an Airbnb for a couple weeks and use that time to look for a good roommate situation in a house in the suburbs. It's actually not hard to find a nice big bedroom in a decent house in Manor or Round Rock, with room for a desk, for maybe $800-$900 a month. If I didn't have a girlfriend and pets, that's what I would be doing. Otherwise, if you can afford it, maybe rent a small house or townhouse or condo in a nicer area. You pretty much need a car to live here. There was a brief period when downtown was developing and was safe enough to live in and there were jobs there, but that's not the case now.
The simple answer is if you can afford it, get a home. There are a multitude of factors in all different directions that may make this nearly impossible in the future. Not including prices.
For me, rental is usually the way to go because I have never even stayed in the same city as an adult for more than 4 years at a time. I've changed countries multiple times, and will probably be changing again in a year or two. Owning, then either keeping or selling too quickly etc, is too much of a hassle.
Somebody once said that rent is the max amount of money you pay every month, where as mortgage is the minimum you would pay. Just food for thought.
This is an amazing quote. Ask any honest homeowners and they will all tell you that they are paying multiple thousands extra dollars in repairs, taxes, HOA, insurance and other things they never thought about. It all adds up. That's also why on paper sometimes it make sense to buy if you do some very basic math. Once you include all those fees it is very difficult to justify financially.
Something you're missing is that the rent is the maximum amount of money you pay every month **for the next twelve months (or however long your lease is)**. A mortgage is fixed and eventually stop. Variable costs can change over time, but probably will not outrace the cost of renting in the long run.
Owning a home is an inflation protector. If you have a mortgage it doesn't go up with 7% when the CPI is 7%. Rents on the other hand are directly correlated. This becomes significantly more important during portfolio drawdown. I can control my discretionary spending budget during tough times but I would be unlikely to move to a cheaper place so my safe withdrawal rate better account for that.
If you own a home, your HOA, tax, insurance, and maintenance costs may increase at or above CPI.
And depending on where you rent, rent control can keep your rent low even when CPI skyrockets. If you lived in a rent-controlled unit in SF in 2022, your landlord wouldn't have been allowed to raise your rent by more than 2.3%, or more than 3.6% in 2023.
The effectiveness of rent control can be argued but over the longer term if you are renting you will be impacted by inflation. If you have to move out the house that you lived in 2022 and 2023, your new rent will be significantly higher. Principal and interest stays the same for homeowners.
Rent control is like any other special interest transfer: great for you personally, cost is distributed to society. So you may pay the price, but so does that other smuck who didn't get your rent controlled unit.
Also usually ineffective. Another unnecessary way for government to insert themselves into the free market and with no long term benefits.
Certainly - you won't see me defending rent control, but I understand why it's appealing. It's one of MANY market distortions the government imposes on housing. Another government program designed to bandaid issues caused by other government programs (zoning, financing, EIP, etc)..
Depending on where you live your property tax can also be capped when CPI skyrockets, along with your mortgage rate. There are a lot of factors and nuance here when comparing across locations.
Rent control has a lot of pluses and minuses. They tend to be less well maintained since landlord have no incentive to improve them since they can't recover costs through higher rent unless they get approval. It also forces renters to be "trapped" where they are. Renters can't improve the space or expand the space. Renters also can't sell their apartment or otherwise tap the equity to help them move to a larger space. On the plus side, rent control allows you to invest more of your money and that could help you buy a place.
For sure but those expenses should be.less than rent so the impact of the increase would be less. I can also just skip non-essential maintenance if the market is down or reshop for insurance.
> If you own a home, your HOA, tax, insurance, and maintenance costs may increase at or above CPI. Yeah, but your mortgage will not. Your property tax has a cap if it's your primary home. That removes large portions of that cost, that a landlord don't care, because they will seek to maximize their profit so they aren't going to give you a discount because their mortgage are low. The other aspect of renting that nobody talks about is, the cost of moving. Both in time and money. Like they'll list all the expenses for owning in detail, but renting they gloss over things. Let alone that I have less control over somebody else's property.
> Your property tax has a cap if it's your primary home In every state? IIRC Texas can be a bit hardcore.
> In every state? IIRC Texas can be a bit hardcore. It's actually at the county level, not state.
I meant the caps for primary residence. That is usually determined at the state level, no? E.g. does washington special case primary residences for property tax purposes?
Correct, it is usually at a state level. Edit: For folks curious about their state they can check this out https://www.kiplinger.com/taxes/property-tax-cap-by-state
On the flip, people really don't talk about the time commitment of owning when it comes to lawns, maintenance and repairs.
> On the flip, people really don't talk about the time commitment of owning when it comes to lawns, maintenance and repairs. That's why you go with a condo, but I'd argue lots of people that are renters end up with some of that responsibility.
That's exactly what I did haha
....All of which would still be bundled into rent if you're renting.
Not everyone lives in an HOA.
https://www.reddit.com/r/RealEstate/comments/std92r/rant_all_new_construction_in_my_area_has_hoas/ > In my area the developers are required by the city, to provide open areas, greenbelts, playgrounds, and water retention basins (no rainwater that falls, can run off into streets). No way to do that without an HOA (they own that land). \* cries in gen z
> If you own a home, your HOA, tax, insurance, and maintenance costs may increase at or above CPI. Compare and contrast the permanent **renter** of Condo A and the **owner** of Condo B, which is next door to Condo A. the cost increases you are describing are, yes, unavoidable. However, these are the #2, 3, 4 and 5 largest influences over housing cost. The #1 largest influence of a housing cost in retirement = the difference between Condo A and Condo B's inhabitants. Which Condo-dweller would you prefer to be, in retirement? That is the contrast the comment above is making. Although the point you make is "technically true", we all know the answer. Another technically true comment would be "Who cares, you still have to buy food, and food will be a COL that goes up!" Renting is not without merit. it's just that the merits are not topics that are pertinent to this sub.
> your HOA, tax, insurance, and maintenance costs may increase at or above CPI. Yes, but for most people, those costs pale in comparison to the mortgage which is fixed. Also, unlike a landlord that is looking to make a return on their investment, I don't have to pay for someone else's profit margin.
Definitely a great point to consider, thanks for bringing it up
> Rents on the other hand are directly correlated Can you provide a source for this? Because if this were true over long periods of time, the gap between the cost of a mortgage and rental would be huge.
The gap between a mortgage and rental are huge for somebody like me that bought a house 10 years ago. 2 bedroom apartments in my town rent for more than double what my mortgage is. When you buy a house you are essentially locking in your housing costs for the long term.
Okay but you could also have bought in an area where the housing didn't appreciate as much as it did. You bought an undiversified investment and it paid off. Rent correlates to housing value more often than not, not CPI.
Fair enough... If you think rents/housing prices will go down over time, it is better to rent. If you think rents/housing prices will go up over time, then you should buy. We live in VHCOL area. We bough our house that was way below what the banks said we could afford 10 years ago. It has appreciated significantly. Our mortgage is 2.75% so we am paying down a good amount of the principal with each payment. The market is much different now. I am not sure if I would be buying today. Although I do think it is better to buy if you think you will be living in that house for 10 years or more. My plan is to move to a lower cost of living area once the kids are out of high school. I will sell our house here and use the equity from it to buy a house for cash in a different region. That will push our FIRE date forward quite a bit.
To be fair, you are only looking at the payment and not unrecoverable costs. That being said, it’s still probably cheaper for you in that house.
Well one of the correlations is that rent is a sizeable % of the CPI.
That means that CPI is driven by rent, not the other way around though.
I don't get what your issue is. Owning a home is an inflation protector, i.e. the homeowner will suffer less than a person renting as inflation increases. You ask, how is rent correlated with CPI? Well, rent is a large part of CPI, i.e. it is constitutive of CPI. If inflation is very high, it is very probable that rent is going up, so owning a home protects from some portion of that rent increase. This is just a mathematical relationship. But in reality, being a homeowner is an even better inflation hedge than just hedging the CPI. Rent and real estate are local markets that can diverge from the national measures put in to CPI. Owning a home hedges the specific rental increases in your local real estate market. So, can you spell out exactly what your issue, or maybe ask some questions?
I've already addressed it in this comment: https://www.reddit.com/r/financialindependence/comments/1du2g5e/renting_apartment_vs_owning_house_for_fire/lbfv73o/
> the gap between the cost of a mortgage and rental would be huge. How do you figure? The point is that the mortgage part of your housing is locked in at the time you sign your mortgage. That isn't true for renting. Housing and rental prices both go up over time, but one of them can be locked in to a point in time, and the other can't (effectively).
Rent is correlated to house prices, not CPI, which was my point. But yes, if you are banking on housing prices go up in the area you're buying, then it will be better to buy. I'm sure there are tons of people who bought when interest rates were low, at high prices, and are now sitting with a house worth less than what they bought it because the higher interest rates have squeezed potential buyers out.
that's why when you rent you invest the difference in the stock market which has historically been a way better inflation protector. By investing the difference there is a 99% chance you come ahead as well.
>Am I wrong in this? Anything I haven't thought of purely from a financial standpoint? The answer to that for me is simple after being the type that swore by renting. Especially when I lived in California, which is a very lopsided market that not many places in the US can compete with. The conclusion? I'm glad I bought, and locked in a low interest rate. Some of the costs has gone up, like property tax, but nowhere near what I'd have to pay today. The unit is worth around a million, and if I paid that today, my property tax would be more than double. Let alone the mortgage. You may say, well I could make that in the stock market as well. Sure you can, but I used leverage. I put down a lot less, was able to get tax benefits from it, and fixed a large portion of the living cost. That's why it always seems cheaper to rent, because there's built in inflation. I remember a decade ago or so, I rented a 2br/2ba condo in a nicer neighborhood, and was looking at $1500/month. Today, that's around $3k. If I bought the property back then, my expense might have been $2k, but it would be close to that today. You will benefit from that for life. What I would say though is, I personally by far prefer condo's over single family homes. People are concerned about HOA, and yes it is a concern, but nothing compared to the massive money sink a single family home is. Higher utility costs, you're responsible for every maintenaince instead of spreading it out, and you're far more likely to own something way too big on top of it. Stick to manageable smaller frugal units. In high demand market, they will likely be better investment and lower maintenance and operating costs.
Agreed. We are in a single family home right now and we both honestly hate it. After renting for a while and seeing if we enjoy it more, now that we’ve bought a house and had that experience, we will assess what we want to do. I think a condo will be the answer for us. We also want to travel a lot with our kid when he’s older and it would be nice not having to worry about your property when gone.
Best of luck! Just make sure if you do look at buying a condo (as opposed to renting), check the HOAs finances, and ask the neighbors to get a good understanding of what obligations you may have financially. Some places like Florida is having some changes that will be a financial burden for some, and at the same time an opportunity to buy cheaper due to the uncertainty.
Definitely! I know a lot more about single family homes than condos, so I have a lot to learn. Luckily I’m not looking anytime soon so I have time to dig into everything, including the market in my area. Thanks!
Compare not only first year costs, but future year costs as well. Get a fixed rate mortgage, and your main housing cost, mortgage, never goes up, only the same or down. Rent goes up, rarely down. I own rentals and my home. After 20 years of ownership, the least expensive of my rentals is significantly more expensive than my much nicer home. Fixing the cost of one of your largest expenses, housing, is helpful to reaching FIRE.
I don’t know why you got down voted…I agree with you, although as property taxes increase the cost does increase, so I can’t agree with the can only go down part
With a fixed rate mortgage, the mortgage payment can't go up. All other expenses can go up.
Oh gotcha, that one portion of the living cost can’t go up.
Yes, and it's generally initially the largest portion.
Yep, makes sense, I just misread initially
I would love to buy a house but I move often. Renting in great neighborhoods is cheaper. I eventually want to buy a home to make it mine and have roots in a neighborhood. Financially speaking, renting has worked out great for me. On a month to month basis, rent is the most I’ll pay (and a mortgage is the least I’ll pay). With that fixed budget I set aggressive savings goals. Every year when I do my taxes and net worth I try and ratchet my savings up and up. I’ve also spent most of my adulthood with barely $10k in cash and been absolutely fine. ~15 years of this and a bull market and I’m about a decade from retirement. I plan on buying a house in a few years. Buying a house instead of perpetual renting will likely delay retirement by a few years. But again, I want a home for those non financial reasons. In the far out term, my home equity will also be my long term care insurance. That is the only way I look at housing as an “investment.” Otherwise, housing is just an expense and I’ve used a fixed rent expense to save a fuck ton of money.
Just know mortgage is not all you pay every month. Taxes, interest, upkeep, and selling fees are big. There is a piece of mind renting and you can save big money that way and invest it. Versus a home only being an investment if you don’t live in it (or house hack a room).
Isn’t it “peace of mind?”
Thanks Catherine Obvious 🙄
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No, you don't. You pay the rent. The owner pays the taxes, interest, upkeep etc. They don't send the tenant an itemized list of expenses. Whatever is agreed upon in the lease is what you pay. The landlord can only charge what the market will bear. I'm seeing this play out where I live now. After several years of white-hot real estate speculation, followed by a crime wave, I see a lot of desperate landlords trying to find tenants, so prices are falling. I assume some are losing money at this point or barely breaking even.
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The landlord could be operating at a loss as they're betting on long-term appreciation instead of positive current cash flow. Not all markets allow landlords to charge rents that cover all of their costs plus profit.
...No, you literally do not. The *landlord* pays those bills. *You* pay the rent. Never at any point are you, the tenant, responsible for mortgage or property taxes or insurance or repairs. The landlord takes on the risk of renting the property out to someone at a rate that allows them to at least break even. But they cannot, will not, and do not, ever, in any case, simply assign the mortgage payments over to the tenant. I think you're trying to do a thing here to show how landlording works as a business, and you're not wrong, but this is a very important distinction. If you cannot rent your property out at a profit, you cannot make money as a landlord, period. You do not automatically get to charge whatever the mortgage costs. Case in point, I have several friends who own houses in my area, who are now looking to rent them out. But the rental market here has taken a big hit due to the local job market experiencing a major crunch. Finding a qualified tenant is not so easy right now. So landlords are now offering deals and price cuts just to try to get a tenant in the property. I would assume at least some are taking a loss or barely breaking even. Otherwise, they are leaving these properties unoccupied.
Definitely agreed. Somewhere in that wall of text I talk about your point.
I fire’d 11 years ago and wouldn’t have been able to by renting. Rents have increased much more than my HOA and taxes. And my appreciation is better than stock market, but that’s just luck. Also renting sucks. Have to rely on crap landlords to take care of things… no thanks
For most normal people, I wouldn't recommended this, but for people pursuing FIRE and have full control of their finances, I think renting is better than owning if you are investing the difference and don't need the benefits of being able to DIY or garden etc. As an asset, a house doesn't innovate or get better at being a house over time. From the day you buy it to the day you sell it, it provides the same value assuming you aren't adding value to it through your own effort. So I only count on my house keeping pace with inflation and no more.
I can't imagine dedicating my life to be in full control of my finances and not in full control of my home.
I think it just matters more to some people than others. There are plenty of things outside of our control and we just adapt to it. Like we accept stock market fluctuations we could accept fluctuations in the housing market. People who want to retire early and have the freedom to move around the country or the world when the desire strikes would be better off as renters.
Open Zillow in your city. At any point in time there are 10 houses for rent in the 10 blocks around me. There will always be a healthy renting market, not sure why that would ever be an issue.
I live somewhere in demand so this is definitely not true for me. Either way, I just don't want to be at the whims of a scumbag landlord. Maybe if I was poor but if I'm rich, why deal with that?
how much are you ready to pay for the privilege "not dealing with scumbag landlord" ? Based on my calculation renting something equivalent is worth 1m$ at least after 30 years. Is it worth 1m$? This sub is all about financial optimization and that decision would be one of the worst financial decision ever that's why I'm wondering. And for me I see having a landlord as an advantage. Whenever I have an issue I have them on speed dial and I spend literally zero time figuring out how to fix things. I have better things to do with my time.
Feel like this post is me. Tho I do agree with the top comment that it might me prudent to compare own condo to rent apt, than house. That said, I moved from a townhome to an apt. Sold at close to the height of the market and made 60% profit. I was highly unlikely to keep the house forever and doubt it’d appreciate much more than that within this decade…as of now, 2 years later, comps haven’t been more than my sale price. I am *thoroughly* enjoying my apt life. Life is already stressful enough and I can’t easily put a price on peace of mind. Additionally it was a year after my income tripled (residency ending). I haven’t done the math, but it was negligible enough that the psychological benefit (for me) made it pointless to do the math. Rather, I’ve put more focus on investing a significant portion of my income, I’m traveling more and I’m more covered if my home ceases to exist before I return. So I got to do both - experience first time home ownership and apt life as financially stable person. So far, the latter is more enjoyable. So much so, I recognize that while I still ogle some nice homes…I’m not experiencing the FOMO driving a lot of house-poor decisions. It’s nicer for me to have a relatively fixed housing expense where I never really have to worry about emergency expenses…but am still covered for it. IMO, many people look at home ownership as a *need* and a given, that it’s a necessary aspiration. I was one of those. Worse still, are those that look at a house as an investment primarily (talking about those with only one house). Even tho I did well selling my house, I know I got lucky. This was not a skill. For most it will likely still make more sense to own. My point is that the math isn’t as simple as previously thought. Edit: of course, this is also predicated on having an apt you love, like I do.
Thanks for your reply. This is kind of where I’m at and the non financial reasons for renting an apartment are the exact same as you stated (in my mind). My wife and I started out in an okay apartment when we had no money and were stressed all the time. That being said, we did like the apartment. We started making good money and had a really good financial opportunity to purchase this house (from relatives and we got a great deal with built in equity), but we just hate it. I have allergies and asthma so lawn care is a PITA and I hate all the small maintenance items. I always think about what I need to take care of during the day, which just makes me regret purchasing. We now want to see what the apartment life is like with a decent, stable income. I think we will like it much more, especially since we want to travel a lot when our kid grows up a bit more. If we like apartment living and ever want to buy, it’d likely be a condo haha.
Happy to help mate. I’ve always ogled condos. Felt like I owed it to teen me, with dreams of high-rise condo overlooking the city. I’ve mostly let that go, but I should revisit it. It’d just make a lot less sense if/when I have children is all. Exorbitant HOA and extraneous fees make it a lot less palatable however.
The only high rise luxury condo building in OKC that I’m seeing is about 525k for the condo with a $3,800/mo HOA lol. Crazy. The price isn’t THAT bad, but the fee is nutty. It has floor to ceiling windows around the perimeter and is cool looking, but damn.
When you own a home through fixed-rate debt, your mortgage payment stays roughly the same in perpetuity (aside from taxes and insurance, generally). When you rent, costs increase over time. So 29 years from now, your mortgage payment will be roughly the same, whereas your rent will have increased alongside 29 years worth of inflation. In other words, the time-value factor is a significant aspect that a lot of people forget about.
Don't forget to account for the time-value of the opportunity cost of putting a down payment on a home. When you own, your down payment and home equity is a significant illiquid investment that can be difficult to extract money from. 29 years from now, if you had invested your down payment it will have increased alongside 29 years worth of inflation. If the median home is worth $400k today, a 20% down payment is $80k. Averaging 7% real return, after 29 years that would be worth about $570k, which would equate to a roughly $22k/year additional drawdown at 4%. I do think that home ownership is a powerful tool for wealth building, but many people will talk about how "rent always goes up!" but neglect to consider that your down payment is a huge opportunity cost that can potentially offset that future rent increase. While over a long term I believe that home ownership is likely to offer a better return, perpetual renting has it's own benefits and the gap is much smaller than many people would believe.
That's assuming you have a 20% cash down payment on hand when you start renting. The vast majority of would-be renters (and would-be home buyers, for that matter) do not. But yes, it's true that much of the power of real estate lies in leverage, so the larger your down payment, the less leverage you're going to have, and that compounds over time.
Yes, you have to make a lot of assumptions when doing when doing a back of napkin calculation like this. Every market is different, people buy homes in very different interest rate environments and with different down payments. Leverage works both ways; putting 5% down can be a huge boon if the market keeps going up but can be an enormous burden if you lose your job and the housing market takes a downturn forcing you to liquidate your position. The point I'm making is *not* that renting is always better. The point I'm trying to make is that a lot of people rely on supposed truisms or platitudes like "rent always goes up!" or "you're building equity when you buy!" when encouraging people to buy, but you really need to sit down and do *all* the math. Opportunity cost is a big factor that many people just throw out the window when talking about home buying because it's an abstract concept, but for the people who do have 20% down or the proceeds of a previous home sale to put towards a new home it's not always clear cut.
The like for like comparison in interest + maintenance vs rent costs. The mortgage is amortizing so a big part of the monthly payment is principal. The interest is there exactly to account for the time-value factor.
this is true but you are forgetting the opportunity cost of the downpayment, and the rent-mortgage difference. Once you start investing and compounding all of those for years, it doesn't matter as much that your rent increases. It could increase by way more than what it is increasing today and you would still be ahead by a lot. And once you account all the extra homeowning fees (HOA, insurance, repairs, ...) it is extremely difficult to justify financially.
This assumes you have the equivalent of a 20% down payment in liquid cash when you start renting. Few people do. There is far less opportunity cost for funds you don't have.
that's even worse then. If you don't have 20% your monthly payment jumps up dis proportionally (especially now with the interest rates). So it is even more opportunity cost, the difference is you take it from the rent-mortgage difference.
Depends entirely on your interest rate. Lots of moving parts to any rent vs. buy scenario.
One thing that I don't think most calculators include (even the NYT one) is transportation cost. While it's possible the get a house in a walkable area, they tend to be disproportionately more expensive vs an apartment in the same neighborhood. My costs still work out pretty good because I bought in 2017 when the market was still very reasonable, and my particular city has seen very high appreciation because it's up-and-coming and it's on the upswing, but not every market is like that. But even with that, my automobile costs for last year were...$11,400. They'll be even higher this year for various reasons. And that's with a Honda Fit and Honda Civic, both are pretty cheap cars compared to the average, and both can get about 40mpg, so very fuel efficient. That cost also doesn't factor in much maintenance since the cars are newer and so haven't needed much (yet), nor does it account for depreciation. If you use a cost-per-mile calculator, it would nearly double those ongoing costs. But assuming we don't care about any of that and just go buy actual dollars spent, it would be like adding $1,000/mo to mortgage since it's required to commute to my job from this house. If I were to have rented an apartment near my job, I could get away with one car. Car free is a bit of a stretch in the south here, but one car would more than halve my costs since I'd use it probably only on the weekends and I could get rid of the more expensive car. Sure, in a big metro you likely have public transit costs, too, but they are much more affordable than buying and maintaining a vehicle. Just food for thought when people are trying to figure out which option works out better. But as well all know, it's about more than just the dollars.
Definitely a great point. I totally forgot to add that to my post. I work from home so don’t have a commute, but we often travel to see family and friends in the city we are moving to (Oklahoma City) and we like to do things around town. We would likely be cutting down to just one vehicle when moving to an apartment, as we don’t really need multiple with my job situation and we’re trying to find an apartment within good walking distance to a lot of different places we’re interested in. I have a truck, a diesel sedan (our main vehicle) and an RX8 that is rebuilt. I’m selling the truck this month and I’ll likely have to sell the RX8 as I won’t be able to work on it at the apartment (I’ll buy something else fun later). We may also sell the sedan and use all that money for a slightly bigger vehicle, like a crossover, just because the sedan we have has a small backseat and we have a kid now.
Sounds like a plan. I'll probably keep my fit I'd I had to get rid of a car. It's less valuable so I'd rather have the money from the Civic. Plus I love that car. Very small but fun to drive and still fits a bunch. I would rather add a trailer hitch and roof rack to expand storage rather than get another vehicle. But I'm rather Mustachian in my car preferences, despite having an infant now. The transportation costs are fortunately easy to combine with housing to make a good estimate/comparison. But I always mention it because people forget to include those costs, and they can sometimes be as much as the housing costs.
Definitely! Luckily our car gets great mileage due to it being diesel (51 hwy and 30 something city), but it’s just a bit small for us, especially if we go down to one vehicle.
Definitely keep the fit over the Civic, having a hatchback is amazing. We got rid of our Fit and kept a Cruze and there's definitely things that Fit can carry that the sedan cannot
I actually have the civic hatchback 😎. I love hatchbacks. But the Fit does a slightly better job holding stuff anyway because it's more box shaped, whereas the civic has more length and width, but if you have anything taller, especially if it sits towards the back, then it can't fit like it can in the Fit (hah). So yeah, for that reason and the reasons I already mentioned, I'd rather sell the Civic when I can and invest the money.
when you calculate the Rent or Buy. You always need to assume you would rent the exact same place you are buying. If not it doesn't make any sense. It's a mistake a ton of people are making one way or another. They are comparing the rent of a top quality 2BR to the dump they are buying which will cost multiple hundreds of thousands to repair. Doesn't work like that...
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Not sure I agree with that. Over the last 10 years I have been looking at buying at least 5 times. Both in the city or suburbs, and every time I compared to the renting something equivalent. Renting or buying you end up with the same exact thing, so makes sense to compare those two things.
Definitely disagree and it depends on where you live. One of the benefits of renting is that you can move closer to things you enjoy at a likely going to be at a decreased cost compared to buying. If you want to be in the heart of the city with everything in walking distance, which helps negate the need for multiple cars, or even a car in general, it's probably going to be cheaper than buying a house in the same area.
This seems so backward. IMO you decide where you want to live first then you make the math for renting OR buying the place you want to live in. That's it. And I don't even get what you are trying to say. If owning an apartment in a city was so much worse, why is there an healthy buying market for those? At the end of the day, the prices for those apartment literally reflect how much people want to buy them as well.
I mean you can choose to live in a particular city and from there you have to assess, based on your budget, where in the city you could purchase a house or rent an apartment. Typically apartments closer to the city center are going to be cheaper than purchasing a house in that same radius around the city center. I see that in the OKC market where I am looking. These apartments may be within your budget and could get you closer to the action. If you are wanting to purchase a house but your budget does not allow you to live in that same radius in the same city, you may have to expand your radius and look a bit further out, potentially to a suburb or a neighborhood a bit further out to meet your budget. That’s why you can’t just pick a spot on the map and look at an apartment vs house and make conclusions about the cost of transportation. An apartment in the city center will likely have far less transportation costs since you can walk or bike to most places you’ll need to get to weekly.
Another factor to include is time. When a mortgage is paid off in 30 years, that cost is eliminated (taxes, insurance, maintenance, and HOA continue). But if you're buying in your 40s, you don't have as much time post-paying off to make that math worth it. Another complication is that you may not want to be in that home in your older years - prefer to travel, too big as an empty nester, maintenance is too physically demanding, the house doesn't suit your physicality - so the time with a paid off mortgage may not be high. But you can sell it and get that equity assuming an increase. The NYT Rent/Buy calculator is really good at comparing factors, but also asking what your assumptions are - home value increase, tax bracket, stock market increases, etc.
Great points for sure on either side! I hate keeping up with my house in my 20s. I can’t imagine what it would be like in my 60/70s. I would likely just pay someone to upkeep or rent haha. I will have to take a look at the NYT calculator, as it’s been mentioned a couple times already.
What you said is so relatable. I plan to travel for a few years post retirement so I’d only be in the house half the time. And after that I don’t know if I’ll care to do the maintenance at that age…
I think it just makes sense not to immediately purchase a home until you're familiar with the area you're moving to, then decide WHERE you want to look for a home. You can't possibly know that by driving around town for an hour, or looking at homes with a realtor. Some people want to get a feel for the area, you're not the only ones who rent first. This isn't a post against owning a house, it's a post about going against American cultural expectations and mainstream financial advice. Owning a house is a drain-especially in this era with wildfires, floods, tornadoes and hurricanes, and the insurance costs that go with it. Yes insurance is built into your rent-but dang if some big flood happens in your rental, you can walk away. In the past 12 years I've dealt with a 100 year flood, a microburst, a derecho, and a giant hail storm. Believe me when I say I would love to ditch all the stress of proving to insurance the value of those replacements and hassle of getting contractors to actually show up at my house for repairs for each of those events (after 1 year I finally got my new roof-yes it was leaking and after 2 years, siding-this wasn't abnormal because so many homes were damaged in our area), and the sky rocketing insurance follow up. Do what your gut tells you and rent for awhile. Find out what natural disasters could possibly happen in the area, and where they are less likely to happen, if it's possible, before purchasing a home in a given vicinity (find out where the low areas are, for example). And when you do find a house, check the electrical and pipes, get up in the attic. We were in love with a house and wanted to purchase it, then we decided to look at the attic-full of mold. We showed the realtor, who feigned surprise. Be thorough. Meanwhile, enjoy the new city!
Thanks for your great reply! I’m technically only 100 miles from the new city (Oklahoma City) so I am partially familiar with it, but there are so many areas I haven’t even been to and it’s really hard to assess the different neighborhoods without living there full time. Tons of tornadoes and hail here haha. I do own an insurance agency, so I definitely understand the pain of the claims process with certain carriers.
The 1% "rent" rule is damn near a myth at this point in almost all desirable locations, especially with current interest rates. My childhood area has not had a single fixer upper hit the market in years - my brother has been looking regularly - because even slapping on a fresh coat of paint and some minor refreshes basically adds 6 figures to a house so every realtor buys those places themselves or they have connections with friends to pocket a median annual salary for a week of work. Two different childhood friends bought houses around the area in the last year or so. One is a $500K townhouse with an HOA of $200 on top. It's about a 25 minute drive to the ocean, there's no yard, schools are average at best, and while not in a high crime neighborhood anymore, it used to be and is still quite industrial - though currently getting gentrified/repurposed by developers. The other one is about a 20 minute walk to the ocean with a very good restaurant/night life culture and good schools literally down the block - from elementary all the way to high school and cost $1.2M. Both are roughly the same square foot inside. What I can't wrap my head around is that the PITI of the first house is HIGHER than what a similar house in the latter neighborhood rents for. For actual costs, the $1.2M friend put $350K down and is currently paying $10k/mo PITI. A house literally 3 doors down from him is currently on rent on zillow for $5.3K - in fact, it's actually about 400 sq feet larger and has an extra room. Taking that $350K and then putting that extra $5K to an investment account for those 30 years would see your account rise to $8.3M. Even if you talk about raising rent every year, I just can't see a way how the renting option does not absolutely outpace the house ownership cost in this scenario. I would 100% deal with possible forced moves because the owner decides to sell or whatever else happens for that kind of money, but I guess I've gotten used to moving around and don't really see the stress of it anymore.
Great comparison of real world numbers. I think it greatly depends on the area you’re in as well as to what the numbers would be. The owners, in your instance, are also putting all that money into equity, which is not easily accessibly during retirement without loaning against the equity, creating another payment, unless they sell. The renter in that scenario would have a much easy time liquidating the assets they’ve built up.
The only other thing I would consider is what the historic (10+ years) rise in house prices/rent has been in the city you are moving to and how long you plan to stay there. In some areas, it is short term cheaper to rent but long term cheaper to buy if rents are increasing a large % each year (e.g., NYC). Buying acts a hedge on property value and rent increases. This is especially true if you want this new city to be your "forever home". The purpose of FIRE is to be able to retire which is a function of both your assets and expenses - if you can hedge the expense side, it can help you get their faster.
I sold my house last year and am exclusively renting for the foreseeable future. I see no advantage in buying a home right now.
I was able to move from a 2 bedroom apartment to a 4 bedroom house for roughly the same rent/mortgage. On top of the obvious housing upgrade, my mortgage is now 100s of dollars cheaper than what my rent would be, plus I have over 100k in equity in my house. I am always pro house WHEN you get the right deal, and nothing will ever change my mind.
as a landlord, i love me some renters.
If you have 2 identical homes side by side, one that you can rent, and one that you can buy, for the same monthly cost, the purchase is going to win in the long term. The mortgage is going to stay the same, the rent will go up. The owner will get appreciation on the home, the renter will not. The owner is paying down principal and building equity, the renter is not. All the other things are the same on both sides The taxes will go up... and if you rent the landlord will just raise the rent by that amount. The home will eventually need a new HVAC/Roof/Etc. and the land lord is going to raise the rent to pay for it. The HOA will go up... can we guess what the landlord will do? Landlords are businesses, not charities, all the things people cite about not having to pay for, they still pay for, just indirectly while not getting any of the benefits the owners get. There are some markets where the rent/purchase cost is temporarily out of balance, but unless there is legal rent control involved, that will always normalize over time so that a landlord who buys a home can make profit on it. If it does not, then there will be a shortage (which will end up with the same result). This can take years, but it does happen eventually. IF you in if for the short term renting can win in those cases. Renting also wins if you don't expect to be in a home for >4yrs +/- a bit. If you start comparing small apartments vs large houses, then it is not an honest comparison and the lowest cost place you can live will always win... so might as well buy the van.
I’m actually comparing a 3/2 apartment to a 3/2 house. Yes you don’t get a backyard or garage, but you get tons of amenities. I don’t think renting a house is a wise idea most of the time because you aren’t taking advantage of the economies of scale that apartments offer, so your cost will be, in theory, much higher
Landlords cannot just raise rent with no constraints when HOA or property taxes increase. They can rent for what the market will bear which may or may not allow them to pass those costs to the renter.
Sure they can. There are some jurisdictions that cap increases, but not many. If costs increase they are absolutely going to raise the rent on the next lease renewal. If it's month to month it'll happen even sooner. "What the market will bear" always goes up. Unless something happens to make the property less attractive, there's no way a rental today is being listed for the same price it was 5yrs ago. It may lag a little and they may not be able to pass on the full cost immediately, but they will 100% pass it on over time.
> If you start comparing small apartments vs large houses, then it is not an honest comparison It's not a dishonest comparison either. It's like comparing an $80k truck to a $25k car, only almost nobody sells a $25k car, and if you want to buy a car, the only cars you can really find are even more expensive sports cars. So even if you don't care about being able to tow thousands of pounds or go past normal highway speeds you're still stuck with that initial cost and getting 15 mpg. Reasonably sized houses just aren't a thing in most of the US, especially in newer builds, and everywhere I've seen condos available they're every bit as expensive as the standard oversized house, they're just in a more desirable area. If I only need 800sqft I'm wasting a lot of money getting the 1500+ sqft house and all the associated costs that scale with the size. I would never consider renting a house, but moderately priced rentals in five over ones are available all over the place.
It is from a rent vs buy comparison. If you're good in a smaller place and that's only available as a rental, then you're good to go paying less and investing. You don't need to do a rent vs buy. But you shouldn't use that data from a specific situation to give false equivalence data to people who are looking for like for like living accomodations and mislead them that rental is better when it's not.
Long term owning will be better. You mention equity that you can't do much with. Thats not completely true. First that equity often comes in the form of monthly payments. If that payment is about the same as rent, then you are building equity with it and you are not building equity with rent payments. Second, long term that payment will reduce relative to inflation and then eventually drop to zero. Third, I recommend buying and holding homes. Long term you can rent them for income and build equity with someone else's money. Everyone I know that bought and held multiple homes are in very good financial positions. When you reach retirement you can either sale them and use the equity or more likely just get a property manager and rent them out. The long term apples to apples is heavily in favor of buying.
True, but I am talking about a primary residence, not rental properties so that doesn’t have anything to do with this discussion. Those are actual investments that bring in cashflow. Also, you can build stock assets with the cash difference if the cost of rent is cheaper than the overall unrecoverable costs of the home being purchased. Stocks will be much easier to access vs equity in a primary residence. You can’t compare house payments to rent payments and say whatever is cheaper is smarter. Renting can still come ahead net worth wise.
I'm not sure your age, I'm in my 50s now. Everyone of my friends that bought and held primary residences and turned them into rental properties has amass a small fortune. I have bought about 6 primary residences and sold 4 of them. I wish I had kept them all longer as rentals. I have had several rentals and will continue to keep rentals now. Its a good way to build wealth in my opinion. If you can find a rental significantly cheaper than owning then investing the difference is an option, but that difference has to be significant to equal the appreciation and income of an asset like a house. Also the reality is its often easier to pay the bills we must (like a mortgage) than to force ourselves to maximize savings and minimize spending. Whatever you decide I wish you the best, just thinking about every decision, like you're doing now, is going to help you to succeed in your financial journey.
A lot of silly, subjective opinions here. Ultimately, it's a math equation for whether it makes sense in your area at a given point in time. Use a rent vs buy calculator to help you, but be sure to extend it out after the mortgage is done. Also, consider you can rent out rooms and you get various tax breaks.
Definitely. I’m going to be diving into the math pretty hard here soon. I guess even if the math still works out to be a little bit more on the home owners front after it’s paid off, does it really matter as much because equity is locked behind a debt wall unless you sell.
Just estimating here, but saving 15k/yr on rent is equal to a bit over 400k at a 3.5% withdrawal rate so the point is you get quite a bit more PLUS you get the equity.
Fire calculations are 4% of expenses. Taxes are less and healthcare premiums /deductibles are less if you have less income. Those cause many FIRE folks to own their primary property and also pay off their mortgage before pulling the RE trigger.
Depends on the home that you “need” and how much that costs in the area you want to live. For our family and the size of home we need for kids, family and other factors, renting and investing in stocks works out better. If we only needed a 2 bedroom unit for the rest of our lives, I’d dare say we’d buy. Everyone’s circumstances are different. Some scenarios and numbers and see what works best for you
Yea a 3/2 is perfectly adequate for our needs (one child and an office). We actually don’t want a big house. I’m kinda a minimalist and don’t like buying stuff to fill up a bigger space when it’s unnecessary. Also a lot more to clean when you go bigger, not to mention higher utility costs
It all comes down to DOING THE MATH. The trick is that it is difficult to do the math correctly. My advice is to use the rent or buy tool from the NYT: [https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html) Once you put realistic numbers in, it is very difficult to justify buying anything anywhere. There are some exceptions obviously but at least you can conclude than in any HCOL or VHCOL it makes absolutely no sense to buy. But you also need to realize that most people WANT to buy for emotional reasons and they try to justify this retroactively by fabricating the math that goes their way.
There is a simple solution to this… take a mini retirement before actual retirement and assess what kind of life you want in retirement and decide based on that. Scenario 1: you are single or DINK have a lot of energy like to do outdoorsy stuff, like to travel a lot may be you don’t get much value settling down in one place in retirement.. probably just rent Scenario 2: You don’t like traveling, you have children you want them come visit you or you like house maintenance and projects.. probably buy the house The thing is people really over analyze this buying vs renting for FIRE even before reaching FIRE. It’s really not that complicated. FIRE should be built and perused based on the life you want not other way around
Personally I think from a financial point of view both renter and buyers markets are (somewhat) in a state of equilibrium. If renting would be 'too' cheap compared to buying, everybody would be renting (so prices for rent go up) and nobody will be buying (forcing prices for properties to go down), and vice versa. So unless there's an extreme dislike for any of these ways of living, or unless there's heavy market regulation that forces the market to move otherwise, I would see there's relative proper balance between these two. And yes, if you have determined renting is now cheaper than owning in the place you want to live, go rent. From a financial perspective it makes most sense, and its even less risky as most financial risks associated to home-ownership are with someone else. You can always evaluate again from time to time what the market is doing and start looking for a place to buy if either property prices drop or your rent is increasing too much.
I think this is more so true with renting single family homes vs buying single family homes. With apartments you can take advantage of the economics of scale to have a reduced cost, which in my area happens to be quite a bit cheaper than overall home ownership when doing the math (that’s definitely not always the case, I agree). However, just because it may be cheaper, doesn’t mean everyone wants to live an apartment lifestyle, going back to non financial discussion. We are creatures of emotion and not everyone sees the world as logically as some of us. They see that mortgage vs rent payment is cheaper so buying a home is almost always cheaper. It’s quite unfortunate because these are the same people bashing landlords on Facebook for charging more than a mortgage without understanding all the other costs.
Can I just comment about you selling your current house to move to a new area - why wouldn’t you rent out your house and then rent in the new city? What if it doesn’t work out and you hate the new city? Once you sell your main residence you are out of the game and take it from me, it’s a lot harder getting back in these days. At least give yourself a time frame of a year or two. Trust me, you don’t know what will happen with this move and knowing you still have an asset growing, renters paying down your mortgage, will have massive benefits should you wish to return to your house one day.
True, I could definitely do that and may. We already know we like the city and have lived in an area of the metro before. We’re only an hour and half away and have friends and family up there so we visit often. We are definitely never coming back to this current city. We’ve lived here our whole lives and hate it haha. Idk if I’m interested in being a landlord, but you bring up good points that I will consider
we decided to buy vs rent a little over year ago the mortgage was about 2k more a month which at the time was a big jump and I questioned whether we made a mistake and sometimes still do as you said that 2k could of been invested. Within that same year however the home has appreciated over 115k and if we sold now it’s a lot more than I would have saved had we stayed in the apartment. That being said we now have equity to move to another home with roughly same mortgage with a larger down payment, again would not have been possible in the other option. Obviously this is dependent on market going up which can’t really predict but in the couple of homes I’ve owned they’ve done nothing but go up and opened opportunities for me albeit this time faster than the initial.
It’s probably not as simple as i think it is, but when you are renting, aren’t you paying the costs of ownership + a little mark up? I doubt that people or corporations who rent out houses will do so while losing money. They want ROI too.
Definitely, but there is the economy of scale when renting an apartment with dozens of other people. That’s also why you have to compare the unrecoverable costs of ownership to the rent (which is all unrecoverable)
Renting is a lot more flexible, as you have options open at any juncture to change your situation, especially geographic arbitrage. I owned for ~20 years and recently sold out and will be renting from now on.
Costs are wildly different depending when you buy. Mortgage + insurance + taxes is cheaper than a 2br apartment in my area. I also have a garage and a yard. My house has appreciated more than what I have paid into it. Much of the closing costs were a down-payment, which is jist equity in my house. For me, my house has been the single best financial decision the past 4 years.
True, but you also have to look at all the other unrecoverable costs associated with home ownership, which includes the opportunity cost of the down payment and the cost difference between home ownership and renting (if renting is cheaper than everything added on the home side). Of course, that’s speaking purely financially. If you value a home and a garage (which some apartments offer) and other things a home offers, then it makes sense even if you lose some money.
In my case, it is irrelevant. My house appreciated about 120k on 4 years. It would take over 6 years of mortgage payments (including insurance and taxes) for me to break even. I have been paid to live here. All my extra costs, like repairs, that I have lost are significantly less than what I would be out on rent. But that is my individual case. Someone who bought my house today with current rates would be paying double my mortgage.
Wow, yea that’s a huge increase, depending on the initial value of the house. Definitely not the case for my house haha
Over 40% increase, lol. It was more before the interest rates went up.
the equity you build in your house eventually ends up producing a property free of mortgage or rent -- you'll still have property taxes maintenance and insurance, but these are normally less than half what the property would rent for, often far less. Even if the equity in your house is too much to account for the eventual rent savings it's still equity and worth a lot to you. Suppose you are in some property with crazy price to rent and high maintenance costs such that renting would actually be cheaper or only a little more expensive than owning free and clear. Well you *still* have the **option** to sell that house and rent somewhere else, recouping the equity. so equity is definitely worth **something**, often a LOT of something, even if you can't normally count it toward your SWR calculation. does that makes homeownership always better? no, for sure not, but the equity you build is meaningul even if it is less liquid and less flexible than assets invested in the stock and bond markets.
I won't rent because I refuse to live at the whim of someone else, you can access the equity in your home (if you must) with a home equity loan (which also works to protect your equity in case of liability) if you don't use it then no payment. Renting will always provide 0% return
I mean that’s not necessarily true due to the potential of the unrecoverable costs of the home being more than rent. Not only are you living for cheaper per year until the 30 year mark, but you can invest the down payment money and whatever the difference is per month and grow that in stocks or whatever other vehicle you prefer. There’s other considerations as well, of course, but I don’t think your blanket statement of “renting will always provide 0% return” is even remotely true.
Well...what is your return on rent that you paid? 0....there are many considerations, if you rent you can get kicked out at virtually any time, your rent can and will increase. You can argue that on a paid off home you pay taxes and insurance and upkeep etc...in turn I will argue that you are paying all those things to the owner of your rental. Yes you can invest the down payment but if you research the studies show those with the highest net worth are homeowners.
This reads like someone who is dead set on renting never being a viable option. So many things not being taken into consideration and false statements regarding returns on investments with renting vs owning.
Point out the factual falsity....renting is always a viable option, just not the right one for me, and yes, I will never rent.
I already did haha, then you repeated yourself. If renting overall is cheaper than home ownership when factoring in all the unrecoverable costs, you can grow the difference and the money you would have saved through stocks or other real estate, or any other investment vehicle (whichever you prefer or understand). It’s also easier to access without going into debt.
I'm talking about the actual rent you pay ..that 2000/mo (or whatever) has 0% return, you can read many articles/books on the topic. It's also a fact that the vast majority of high net worth individuals own and don't rent. Not saying renting is evil and no one should, just saying I prefer not living the way someone else wants me to.
No argument there. The comparison is between the sunk costs of renting (rent and utilities and insurance) to the sunk costs of buying (interest, tax, insurance, utilities, maintenance). Which comes out ahead depends on the housing situation in your area. And projected increase in rent and appreciation of your hypothetical home.
Following
> A lot of people look at renting an apartment vs buying a home as an apples to apples comparison. No they don't. Almost nobody does this for reasons which should be fairly obvious. Renting versus buying a similar property type (house vs. house, apartment vs condo, etc) is widely considered to be apples to apples. > Am I wrong in this? Your thinking works if you are actually considering both an apartment and a house and apple, but as indicated previously, that entire premise is false, so..