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interest can be done away with totally too by paying cash , but then there is the loss of income on that money that you were getting and now you are not . so everything has additional costs to it . every dollar channeled in to the house has a cost associated with it in lost income .
even a treasury bond which has no risk would be paying you on that money . so you really can't pretend there is no other cost because there is .
The thing that seems to get lost in all of this is the utility of the house. The interest expense can represent what one would otherwise be paying in rent and it's a declining amount as the principal balance gets paid off.
Another example would be a second vacation home. Yes, there was a lost opportunity cost of the principal tied up in the home but that lost opportunity costs must be measured against the appreciation of the home (coastal property with high appreciation rate). The interest expense and taxes were a substitute rent for seasonal vacation expense equivalent to $12,000/year. So, in essence, we were renting to ourselves and no money exchanged hands for tax purposes.
Last edited by Maddie104; 12-28-2018 at 07:35 AM..
The idea of paying rent has always been repugnant to me.
I'm very frugal (read: cheap) and saved from a young age to buy my first house and then pay it off early, just assuming that it was a good investment and a smarter idea than renting, and I have no doubt that I was right about that. I then went on to buy additional properties and rent them out, contributing to my retirement nest egg. But as I near retirement, I'm taking a new look at the situation from a new perspective. I know I want to relocate, but I don't know where. I know keeping my current house while traveling won't be an option (it's old and has issues and would be nightmare to rent out)... So I've been wracking my brains trying to decide where to purchase property next for the last couple of years, but now I wonder -- am I on the wrong track?
Living in even a paid-off house isn't cheap... There are expenses. Repairs, upkeep, maintenance, not to mention taxes, insurance, and utilities. Has anyone ever made a study of whether or not it can be actually cheaper to rent (of course it depends on the housing market in a particular area, but so do home prices)?
Additionally, if I rented, I could live (a year or more) in all of the many locations I'm considering; I wouldn't have to choose just one.
Thoughts???
Here is the problem with renting. Every year, your rent increases, but your income does not. With a mortgage, or if you own the place outright, it stays the same.
My ex has been renting for the past 12 years, but every year they keep bumping her rent up, and it is now to the point where she is struggling a little. So, she is about to buy a condo, where her mortgage will be lower than the rent she is paying, and will not change over the years.
Rent , at least down here, has gotten out of sight. A typical 2-2 apartment is now in the $1500 up range a month, whereas a mortgage would be in the $700 range. Also, if you rent, you are just flushing that money down the toilet every month, with a mortgage, you own something.
The thing that seems to get lost in all of this is the utility of the house. The interest expense can represent what one would otherwise be paying in rent and it's a declining amount as the principal balance gets paid off.
Another example would be a second vacation home. Yes, there was a lost opportunity cost of the principal tied up in the home but that lost opportunity costs must be measured against the appreciation of the home (coastal property with high appreciation rate). The interest expense and taxes were a substitute rent for seasonal vacation expense equivalent to $12,000/year. So, in essence, we were renting to ourselves and no money exchanged hands for tax purposes.
the problem is you can't have both . you either have the utility of the house or the appreciation and sell the house . .
you need to weight the balances . we had a second home with no mortgage . effectively it cost us 10k to keep going a year , at the time even cd rates were in the 5-6% range so we gave up 13k in income as well to have that house . that house really cost me 23k a year .
in fact when we sold 5 years later we sold it for the same price we bought less broker fees in 2012 as there was no appreciation in the poconos .
we paid 235k in 2007 and sold it for 235k in 2012 . the person we sold it to sold a few years later for 185k .
so appreciation does not alway fall in to the picture . a quick look at zillow shows it approaching 2007 levels today
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Last edited by mathjak107; 12-28-2018 at 08:09 AM..
Here is the problem with renting. Every year, your rent increases, but your income does not. With a mortgage, or if you own the place outright, it stays the same.
My ex has been renting for the past 12 years, but every year they keep bumping her rent up, and it is now to the point where she is struggling a little. So, she is about to buy a condo, where her mortgage will be lower than the rent she is paying, and will not change over the years.
Rent , at least down here, has gotten out of sight. A typical 2-2 apartment is now in the $1500 up range a month, whereas a mortgage would be in the $700 range. Also, if you rent, you are just flushing that money down the toilet every month, with a mortgage, you own something.
you are making a blanket statement that as a blanket statement is wrong . we sold our house 18 years ago and rented since . we made many times what the rent increases and rent was over that time frame . if we wanted to we could actually buy multiple homes today with what that money not tied up in a house produced for us ..
you can't look at just rent going up without looking at if alternative investments were made with that money sitting in the house . which we would never have been able to do with the money if we were not renting .
many people buy business's rather than buy a house . that business can easily surpass owning financially . so there is more to the story than "rent goes up "
the real question is if you rent , what are you investing in as an alternative ?
Last edited by mathjak107; 12-28-2018 at 08:08 AM..
"Also, if you rent, you are just flushing that money down the toilet every month, with a mortgage, you own something."
True enough and, again, when you're young, just starting out, building wealth, or even saving for retirement, that's a very important consideration... But at some point in life, there's no point in accumulating more and more money (again, unless you want and plan to leave it to an heir); at some point, you won't have time to spend it all! So it's time to start divesting versus investing.
The goal, for some people, is to die broke.
"...the real question is if you rent , what are you investing in as an alternative?"
I DO plan to buy and would actually always own one property; a newer, no- to low-maintenance (in sharp contrast to my present home), well-located vacation rental in a tourist destination that I know I could always rent out -- whether that's annually, on a lease, weekly to vacationers, or even nightly re: AIRNB -- while I either travel or live elsewhere. I'd like to buy that where I have the greatest potential to earn money with it and don't even care which "tourist destination" that is (a question I've actually asked on the real estate forum). When I pass away, it will go into my estate to be sold and then donated to my favorite charity. "Where is elsewhere" is the question with which I grapple. I've always assumed I'd either buy a second home somewhere or travel in an RV; in other words, own something. I'm just now considering the possibility of renting instead and just wondered how the relative costs compare since that's nothing I've ever done or thought about.
when starting out in life owning can make a difference because you likely lack the choices to invest elsewhere , WITHOUT LIVING IN AN UNDESIRABLE AREA , where rents are low enough to give you a choice .
here where homes start at a million bucks for a tiny one , you can rent in a nice building like ours for a fraction of the cost . so if you have the dough to buy that home then you may have choices of renting and alternatively investing .
my daughter got married and they were going to rent where we live , no way did they have the money to buy a house here .. but i talked them in to buying a co-op in howard beach for the same thing . so here you have youngin's starting out with two different options .
when starting out in life owning can make a difference because you likely lack the choices to invest elsewhere , WITHOUT LIVING IN AN UNDESIRABLE AREA , where rents are low enough to give you a choice .
here where homes start at a million bucks for a tiny one , you can rent in a nice building like ours for a fraction of the cost . so if you have the dough to buy that home then you may have choices of renting and alternatively investing .
my daughter got married and they were going to rent where we live , no way did they have the money to buy a house here .. but i talked them in to buying a co-op in howard beach for the same thing . so here you have youngin's starting out with two different options .
Well, maybe we need to talk? I could think of worse places to buy and own that vacation/tourist/rental property and eventually retire to it myself. But of course NYC real estate is unlike any other on earth...
I guess owning vs renting is up to your individual needs and circumstances.
We have 6 rescue dogs- no one would rent to us. As an FYI, I am 66 and hubbie is 64.
With renting- no maintenance. With a house, we now need to buy a new dryer tomorrow because 2 days ago my dryer literally blew up, during the summer a storm blew off some roofing we had to replace, we mow, shovel snow, pay for garbage removal, just paid over $1000 for heating oil (and will need more soon), and in the spring will need to paint the whole exterior of a 2600sf house.
You can also just pack up and move when you need to due to job, family issues, or you just don't like the area.
With owning- We pay $18,000 in a mortgage every yr , $1800 in HO insurance and $8,000 in taxes that go up- that's $27,800 a year w/o electric, oil, phone, food, etc. That's almost $2400/ month. You can get a lot of apartment for that. Even if the mortgage is paid off (and we have 25 yrs yet), our taxes and insurance alone will be almost $10,000/ yr and each year these things go up.
Maintenance, repairs, and replacement of anything is up to us and what we can pay. We do the work and pay the cost.
We currently have our place up for sale. It's been on the market for 2 1/2 yrs, thru 3 different real estate offices, and we've lowered our price 4 times. Ppl love it but we never hear from them. Other houses are also just sitting unless you are selling REAL cheap- usually it's the handyman specials that sell fast. So if you own, can you sell if you need to? Can you sell in a hurry if you need to?
So it's complicated and it's something you need to weight the pros and cons for.
Yes it can be risky, higher rents after the lease, or the building gets sold. I know someone who had to move because the building was sold and a hi-end co-op was going in instead.
But on the other hand- the older you get and if you live on a fixed income- can you afford a home and it's maintenance? Can you do the work? Even "simple" things like mowing, shoveling snow, changing outdoor light bulbs especially if you need to pull out a large ladder....
You can buy a condo or co op but will you be able to sell? Around here you can die waiting for a buyer. Can you afford the maintenance/ "common fees"? Can you afford to maintenance of the INSIDE which YOU own? New appliances, new flooring, painting- can you do it or will you hire someone else? If you hire than why not hire out in your own home?
Renting vs owning has pros and cons for everything and it can be very complicated....
Yes; condos are less maintenance and would seem to combine the best of both worlds (owning and renting), but actually combine the worst of both worlds: being stuck with a property AND having to pay the equivalent of rent every month (the HOA fee). Additionally, just like rent, that fee can go up without warning, and then there are those unexpected assessments. It's true, too, that they are even harder to sell than a standard house since the financing for a condo is harder for buyers to procure. And if you don't like the neighbors making noise on the floor above you or on the other side of your balcony or paper-thin wall, heaven help you!
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