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I am both a tenant and a landlord. I own rental properties but rent my primary residence because the cost of renting where I live is so much less than the cost of ownership. The type and location of home I rent has not been available for sale for years even if I did want to buy. The property tax and insurance alone on my home eat up two thirds of the rent the owner gets from me. I know this is unusual but I'm happy to continue renting as long as the dynamic stays this way. There is no "one size fits all" in the decision to rent or buy.
We also rent and owned lots of investment property in nyc.
Assuming I still lived in a high COL area, yes I would still rent. *For us* renting allows us to live below our means and still have a better quality of life. Even with the smallest, cheapest house we'd be "house-poor", and that's not something my husband or I want. We won't be buying a home until we retire, move to a lower COL area, and can pay cash.
Not super rich but say you can afford the mortgage and other costs of ownership, would you still rather rent than buy?
Yes--right now I want the flexibility of being able to move. Was stuck in a house for years waiting for prices to come back and never want to have to live my life around a house again. I'd rather spend all the house maintenance money on travel. I think it totally depends on your own personal situation, though.
I am close friends with realtors and home inspectors. They explained that owning a home is only a wise decision financially if you plan on living in the home a certain number of years. (Of course, they don't mind selling a home to anyone who is interested). A person usually breaks even on home ownership after living there about 5 years. Otherwise, renting is a better value. Home ownership isn't cheap. Even if the mortgage costs less, the costs of maintainence must be factored in. There is less flexibility to relocate. Of course, a homeowner has greater flexibility to change their home the way he/she wants to, but the HOA is the homeowner's version of a landlord as well, and some HOAs can be very restrictive about what you can and cannot do to your home. I rented this past year and didn't mind it one bit. Our landlord never showed up a single time at our home, and the pet deposit for our two Great Danes was a mere $300
yes, the maintenance required for the yard, the snow removal etc makes renting more appealing.
I suppose that depends on what and where you rent. In my area, if you rent an apartment, you don't have that stuff, but if you rent a house or duplex, you are responsible to do the yard maintenance and snow removal yourself, or hire it done. So no difference there between renting and owning.
I am close friends with realtors and home inspectors. They explained that owning a home is only a wise decision financially if you plan on living in the home a certain number of years. (Of course, they don't mind selling a home to anyone who is interested). A person usually breaks even on home ownership after living there about 5 years. Otherwise, renting is a better value. Home ownership isn't cheap. Even if the mortgage costs less, the costs of maintainence must be factored in. There is less flexibility to relocate. Of course, a homeowner has greater flexibility to change their home the way he/she wants to, but the HOA is the homeowner's version of a landlord as well, and some HOAs can be very restrictive about what you can and cannot do to your home. I rented this past year and didn't mind it one bit. Our landlord never showed up a single time at our home, and the pet deposit for our two Great Danes was a mere $300
I think this is a great way to look at it. From a pure financial point of view, the length of stay is usually the key factor (though there is variation by local housing/rental market). There are certainly other angles to consider: flexibility, emotional considerations, landlord/tenant law, etc., and you discuss a couple of them.
I rent. My locale has very strong protections for renters, so I have very considerable security in my domicile. And rent control puts me substantially below the FMV of the rental market. The housing market is very expensive, and I could probably afford to buy, but it would tie up a huge chunk of my liquid assets. For the time being, I am happy with renting, especially because I am not really confident about the short to mid-term prospects for the local residential real estate market (because it has been on such a tear for the last 4-5 years).
From a pure financial point of view, the length of stay is usually the key factor (though there is variation by local housing/rental market). There are certainly other angles to consider: flexibility, emotional considerations, landlord/tenant law, etc., and you discuss a couple of them.
It's an important factor, in the sense that buying and selling houses involves large transaction costs. Even in a healthily rising market, it takes years to recoup those costs. Conversely, even if rent goes up slowly, over the decades it does accumulate, whereas mortgage costs are presumably fixed (taxes, maintenance and insurance however are NOT fixed!). So indeed it's true that longevity of ownership leans the decision towards buying vs. renting.
Still, in economically stagnant areas, markets can go against the homeowner for decades. Landlords are somewhat insulated from this, since they're after the cashflow (rental income), while house-owners are after the capital gains.
However, for all of my acrid disaffection with owning my house, I hasten to add the psychological value. Suppose that Joe Successful has a $1M 401K-plan and made it to Vanguard Flagship. Good for Joe! But if he rents in an area where most people own (so, not NYC), he's going to feel like a chump. Bob Successful and Bill Successful are all homeowners, and they're not even as well off financially as Joe Successful. Yet Joe is the renter. Joe loses social cachet. Joe, being a smart man, realizes that mere social prestige is a silly reason on which to base major financial decisions. So he's going to search for a genuine financial justification for buying a house. In reality he should admit that the financial justification may or may not be there, but the social one is definitely real –and he's wealthy enough to afford it.
It's an important factor, in the sense that buying and selling houses involves large transaction costs. Even in a healthily rising market, it takes years to recoup those costs. Conversely, even if rent goes up slowly, over the decades it does accumulate, whereas mortgage costs are presumably fixed (taxes, maintenance and insurance however are NOT fixed!). So indeed it's true that longevity of ownership leans the decision towards buying vs. renting.
Still, in economically stagnant areas, markets can go against the homeowner for decades. Landlords are somewhat insulated from this, since they're after the cashflow (rental income), while house-owners are after the capital gains.
However, for all of my acrid disaffection with owning my house, I hasten to add the psychological value. Suppose that Joe Successful has a $1M 401K-plan and made it to Vanguard Flagship. Good for Joe! But if he rents in an area where most people own (so, not NYC), he's going to feel like a chump. Bob Successful and Bill Successful are all homeowners, and they're not even as well off financially as Joe Successful. Yet Joe is the renter. Joe loses social cachet. Joe, being a smart man, realizes that mere social prestige is a silly reason on which to base major financial decisions. So he's going to search for a genuine financial justification for buying a house. In reality he should admit that the financial justification may or may not be there, but the social one is definitely real –and he's wealthy enough to afford it.
Well said.
It's sad that social pressure pushes so many people into making unwise financial decisions, particularly if the results of the decision won't make them happier.
Where I live, in a nice part of Orange County, CA, it doesn't make much sense to buy right now, even if you can afford it.
The cost to rent is much much lower than the cost to buy the identical property. We sold a condo last summer, and have decided to rent for now, even though we can afford to buy the big, "move up" house (over 1.5M) I know other acquaintances who have decided to put their houses on the market and instead rent a similar house in the same neighborhood where they currently own. I used the New York Times calculator, and it told me for where I am, the kind of house that I'm looking for, and my particular financial circumstances, I'll never come out ahead buying, even if I stay there for over 30 years!
It's an important factor, in the sense that buying and selling houses involves large transaction costs. Even in a healthily rising market, it takes years to recoup those costs. Conversely, even if rent goes up slowly, over the decades it does accumulate, whereas mortgage costs are presumably fixed (taxes, maintenance and insurance however are NOT fixed!). So indeed it's true that longevity of ownership leans the decision towards buying vs. renting.
Still, in economically stagnant areas, markets can go against the homeowner for decades. Landlords are somewhat insulated from this, since they're after the cashflow (rental income), while house-owners are after the capital gains.
However, for all of my acrid disaffection with owning my house, I hasten to add the psychological value. Suppose that Joe Successful has a $1M 401K-plan and made it to Vanguard Flagship. Good for Joe! But if he rents in an area where most people own (so, not NYC), he's going to feel like a chump. Bob Successful and Bill Successful are all homeowners, and they're not even as well off financially as Joe Successful. Yet Joe is the renter. Joe loses social cachet. Joe, being a smart man, realizes that mere social prestige is a silly reason on which to base major financial decisions. So he's going to search for a genuine financial justification for buying a house. In reality he should admit that the financial justification may or may not be there, but the social one is definitely real –and he's wealthy enough to afford it.
I do think the social/psychological value is real and important. It is tough to compare it to financial value (which itself is tougher to evaluate than a lot of people would give it credit for).
Keep in mind, also, that Joe Successful may be able to obtain greater social cachet by directing his money elsewhere than home ownership (a classic car collection, wine collection, endowed donor status at a respected local charity, etc.). Some social circles will also be less concerned about whether one rents or owns, therefore this social cachet may not end up actually providing value to Joe Successful.
Quote:
Originally Posted by RecentGrad1
Well said.
It's sad that social pressure pushes so many people into making unwise financial decisions, particularly if the results of the decision won't make them happier.
The wisdom of the financial decision depends on a lot of factors.
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