The MATH of Buying vs Renting (vehicle, business, medical, employment)

[mathjak107]

not true at all . time and inflation works wonders .

like i said even if i owed my entire mortgage which i took 30 years ago , the additional cost today of carrying that relatively small payment is nil . it is less then most folks spend on utility costs here maybe even 1/2 .

my ex lives in one of our co-ops we bought in 1987 . she lives there today for 600 a month maintenance costs . that apartment rents for 1750 . even if we had the outstanding mortgage today still due it would run about 1100 a month .

time , appreciation and inflation makes mortgages smaller and smaller as a percent of income

[ncole1]

Originally Posted by mathjak107

not true at all . time works wonders .

like i said even if i owed my entire mortgage which i took 30 years ago , the additional cost today of carrying that relatively small payment is nil . it is less then most folks spend on utility costs here maybe even 1/2 .

my ex lives in one of our co-ops we bought in 1987 . she lives there today for 600 a month maintenance costs . that apartment rents for 750 . even if we had the outstanding mortgage today still due it would run about 1100 a month .

But what if you owed what it is worth NOW?

[UNC4Me]

Originally Posted by SaucyAussie

Let's say you have a renting scenario that allows you to save an additional $400/mth compared to buying. That allows you to contribute an additional $500/mth into your 401k. If you can average 6% returns, then in 40 years, that's an additional million dollars in your 401k. And that doesn't factor in the downpayment, or any employer match.


All hypothetical, and probably not realistic, but it does show that renters can accumulate significant wealth in lieu of home equity.

Sure, but you've also spent 40 years living in an apartment. Quality of life also factors. I'd rather not be miserable for 40 years just to have an extra million at some point.

[mathjak107]

Originally Posted by ncole1

But what if you owed what it is worth NOW?

even in 2008 it was not close . short term yeah , anything is possible if you just bought . but if you are in a home long term odds are that won't happen .

after decades or after buying one home and over time selling it and rolling the gains from those years in to the new mortgage on another house odds are that won't happen .

i doubt anyone was the same 10 years later unless you bought right at the top of a peak . 10 years is the median length of time folks are keeping homes but as you age it gets longer and longer ,. nothing ever is guaranteed .

visit any retirement forum like the early retirement forum many of us frequent . the most popular reason folks were able to retire in comfort was the cost cutting ability of their homes over time or selling in a high cost area and relocating to cheapsville ..

we can all dream up scenario's where things play out differently but if you listen to the actual story's of folks from the front lines you see the same patterns repeat .

[SaucyAussie]

Originally Posted by UNC4Me

Sure, but you've also spent 40 years living in an apartment. Quality of life also factors. I'd rather not be miserable for 40 years just to have an extra million at some point.

not necessarily.

[mathjak107]

i agree , my wife is in our apartment 35 years . we have a pool , tennis courts , indoor parking , etc . hardly what i would call miserable .

would i want to live in a two family with a small time landlord ? never but nyc and the boroughs are 50% multi family dwellings . some are very nice including ours .

2 bedroom 2 bath

[griffon652]

Originally Posted by mysticaltyger

Best article on renting vs. buying. Warning: It's long. It's designed for people who really want to think through ALL the issues involved, not just cherry pick the ones that support their point of view. This article is written by a woman who owns rental real estate, but it is very objective:

Renting is Throwing Money Away ... Right? - Afford Anything

The only problem I found with this article is that is compares a rental worth $2,500 vs a mortgage worth $2,500. Instead it should compare the rent vs mortgage on two identical properties. I suspect she did this intentionally (given the massive amount of knowledge she had on the subject) to make the article fit her conclusion of a balanced view on renting vs owning.

Truth is, if you compare an identical property in terms of owning vs renting; renting will almost always be more expensive and is a losing proposition right from the start. Hence owning is almost always better then renting if you are talking about two similar properties.

Here is a simplified version of when one is better then the other. This is assuming that the person following the strategy has the discipline to stick to it completely. I'm not going to consider "human difference factors" like some posters because they are irrelevant. If you go that route then you can argue anything as "realistic" based on peoples different personalities/strengths/weaknesses:

Owning is better if:

1. You intend to live long term in the house.
2. You would have rented a place of similar size if you didn't buy.
3. You plan to pay off your mortgage and invest the savings into other investments.

Renting is better if:

1. Your willing to live in a considerably cheaper place then the owner of the above place.
2. Your willing to invest the difference religiously.

Assuming that the owner and renter from above make exactly the same income at all stages of life; the renter will come out ahead in terms of net worth. However, this will be at the expense of his lifestyle which will be significantly inferior to the owner because of the lower class of neighborhood he will live in for all his life.

Based on the math I would always choose to be an owner given the two scenarios from above. Although the renter from above will have a higher net worth; it will only be higher by maybe $150-$350K. I would rather live in a nice place all my life and lose that money then to live in an apartment/crappy neighborhood for all my life.

[UNC4Me]

Originally Posted by mathjak107

i agree , my wife is in our apartment 35 years . we have a pool , tennis courts , indoor parking , etc . hardly what i would call miserable .

would i want to live in a two family with a small time landlord ? never but nyc and the boroughs are 50% multi family dwellings . some are very nice including ours .

2 bedroom 2 bath

Our ideas of miserable clearly vary. Being subjected to the vagaries of landlords and other tenants is high on my list of things to avoid. I'd rather tie up money to have privacy and as much control as possible over my living environment. And most localities are not like NYC or the boroughs and being a long term renter means an apartment and not a single family or even multifamily home.

[mathjak107]

all the exceptions to things are the reason blanket statements never are true

[UNC4Me]

Originally Posted by griffon652

The only problem I found with this article is that is compares a rental worth $2,500 vs a mortgage worth $2,500. Instead it should compare the rent vs mortgage on two identical properties. I suspect she did this intentionally (given the massive amount of knowledge she had on the subject) to make the article fit her conclusion of a balanced view on renting vs owning.

Truth is, if you compare an identical property in terms of owning vs renting; renting will almost always be more expensive and is a losing proposition right from the start. Hence owning is almost always better then renting if you are talking about two similar properties.

Here is a simplified version of when one is better then the other. This is assuming that the person following the strategy has the discipline to stick to it completely. I'm not going to consider "human difference factors" like some posters because they are irrelevant. If you go that route then you can argue anything as "realistic" based on peoples different personalities/strengths/weaknesses:

Owning is better if:

1. You intend to live long term in the house.
2. You would have rented a place of similar size if you didn't buy.
3. You plan to pay off your mortgage and invest the savings into other investments.

Renting is better if:

1. Your willing to live in a considerably cheaper place then the owner of the above place.
2. Your willing to invest the difference religiously.

Assuming that the owner and renter from above make exactly the same income at all stages of life; the renter will come out ahead in terms of net worth. However, this will be at the expense of his lifestyle which will be significantly inferior to the owner because of the lower class of neighborhood he will live in for all his life.

Based on the math I would always choose to be an owner given the two scenarios from above. Although the renter from above will have a higher net worth; it will only be higher by maybe $150-$350K. I would rather live in a nice place all my life and lose that money then to live in an apartment/crappy neighborhood for all my life.

Isn't this the only true comparison? Comparing, as the OP did, renting a 1 bedroom apartment with buying a 3 bedroom home is not a fair comparison. As I said earlier, quality of life comes into the equation for most of us. Whether you feel your quality of life is better renting or buying is answered differently by each. Money is not the entire decision maker.