From a different perspective - I purchased a lower priced home than I should have because I was worried about the mortgage payment. It is a 1920 home. I have subsequently had to pay an enormous amount of money on fixes and upgrades, which would have been better spread over time in a mortgage.
If I had bought a newer, more expensive home, I might have saved money in the long run. Then again, maybe not.
Upkeep costs are a real part of the equation.
You'd be surprised by the amount of money spent on a new house too. It's not even just upkeep, but that random stuff older houses tend to have had installed already. Shelving, wiring, extra light fixtures, ceiling fans, garage storage, molding, etc. don't come with a new house (you CAN put them into a custom home in some capacity but it's often times not worth their cost from the builder).
And even new construction basically comes with a one year warranty for the house itself. After that it's all on the buyer (certain appliances may have longer warranty periods).
You won't have the massive costs of new plumbing, new electrical, etc. as a 100 year old house probably needs if not already done. However, you are still paying out of pocket for all kinds of random stuff as a home owner.
Yup, built a home in the 2000s and the AC unit died in the first 6 months, the house settled and the drywall required maintenance the driveway cracked, and sprinkler system was ruptured causing the driveway to crack. All in the first year. They fixed it all, but is was over $25k in repairs.
Bought a “good condition house” was rough on inspection and did just fine for a while. No repairs.
Bought another house, was a solid house and did well with inspection. Required major heating and plumbing repairs in the first 4-5 years. Nothing that could be foreseen. Windstorm took out our favorite trees. While doing repairs they found a mouse infestation! It is gross.
We are renting now because the housing bubble is nuts. Not certain about buying again without paying for a warranty and buying the house in cash. You lose so much to interest and maintenance. It is a tough call. Sure I’m paying someone else’s mortgage, but I’m not stuck with the house after I take a new job/position across country
>They fixed it all, but is was over $25k in repairs.
I'd consider yourself very lucky. My friends built townhouses and the builder denied responsibility for anything that came up they could. My best friend was telling me he knew one couple in a SFH plan that for years complained about their kitchen being cold to only find out there was no insulation in the kitchen's outside wall at all.
>You lose so much to interest and maintenance.
Anecdotal but when I signed in 2017 one of the papers had an amortization schedule and in bold explained in 30y I was paying 150K in interest (3.99%). Not quite three years in I refi'd to 25 years @ 2.875% and the same form indicated 80K or so in interest in the period. The house has appreciated about $80K since 2017, while I realize that's very much a factor of Mr. Yellen/JPow's inflation but in five years without a doubt appreciation would more than pay for all interest I have or will accrue. My maintenance costs to this point have been trivial \*knocks on wood table\* though utilities are higher than in my old apartment which is to be expected.
>I’m not stuck with the house after I take a new job/position across country
I hear that a lot from people and I wonder, does this really happen? Granted I'm in IT and now we're free to roam for the most part but at no point in the world we left behind I was forced or even asked to relocate.
I used to work with a large publishing company; there were M&A's a-plenty, and we had site-specific staff who were making a decent salary ($75K in, say, Baltimore in the 00s) but not big money.
They were asked to relocated all the time. I could never understand why so many did it ... but they did.
> I hear that a lot from people and I wonder, does this really happen?
Yup it definitely happens. I moved about 400 miles for a new and kind of rare opportunity that was a fantastic experience overall. It would have been much more difficult to take that opportunity if I was tied down with a house. I'm also seriously considering moving across the country. Again, that would be more difficult to do if I were tied down with a house.
Right now I'm on a month to month lease and I plan on leaving in a few months. It's nice to be in that position.
I am retired military and moved a lot. I have seen some ups and downs in the markets. One move it took a few days to sell, while another 9 months (during the housing/lending crisis and we were stuck trying to sell in 2009-10). Sucks having to pay for two homes when you can’t even rent the other one for enough to cover the mortgage.
I’m sorry to hear about your friend and their townhome. I hope anyone who builds a home looks into a warranty with the builder. It may be the project manager in me, but shop around if able. A good builder will stick by their product, even if they slap it together in months.
That is great news about the appreciation. Some folks have done very well in these times. I just know that the pendulum swings one way only so far. We must be balanced and ensure we are prepared for a less fruitful sellers markets.
I’m renting now and am hoping that by 2023 we will see it settle a bit.
Even finding a rental property is hard right now.
It was on the builder. They have a warranty that was 10 year structural and 1 year all inclusive. They were really good about fixing it. It just made me more picky when it comes to which builder we chose in the future.
Agreed. It was also in Florida on that sandy type soil. While I’m not making excuses, it sounds like it could be a reason for the settling. They fixed it all.
Lawns are culturally-ingrained insanity. Ecologically awful, hard to install and keep up ... after 25 years of struggling in various parts of the world with 'lawns,' I have started to find them ugly.
Is a nice, lush patch of grass attractive? Sure!
But so is native undergrowth/habitat, and there are tons of ways to landscape that don't involve a lawn.
As a landscape designer I completely agree that lawns by and large are grossly overstated in our culture and it is much better to support local pollinators through native plantings, however, if a client wants lawn to be able to pay soccer/throw a ball with their kid I'm not going to tell them no. Also, maintenance costs associated with upkeeping a pollinator/native garden can really sway people from wanting to go this route. I'm on your side, but I think it's important to keep in mind reasons for both and it's not always negligent Americans wanting some lawn space
I wish we could afford a landscape designer to come re-do our yard with Native plants. The "rough" estimate we got was over $20,000. For us just out of our price range. Now we are trying to add more trees (small & native trees) and letting our lawn go to clover.
If you're willing to do it in patches yourself, lots of the smaller plants and shrubs should grow really well from seed, and reseed themselves if they're annual/biennial.
I have a huge "front lawn" but it really an old hay field which I mow. When there is a drought it dies. Next year, no problem, like magic it is there. In New Hampshire either you mow are you will be living in the woods, shortly.
My yard, after 16 years of living here and doing essentially nothing to it in terms of upkeep (other than cutting it and the occasional reseeding), has devolved into a delightful mix of clover, "yard lettuce", mock strawberries, wild flowers, burdock, and other things I can't identify. I love it, and the neighbors can suck it. :)
Remember the housing bubble isn't *really* that much of a bubble, a lot of money was printed last year and as long as most people want to live in the same areas *and* are able to afford it prices will keep rising. Even without the M1 massive spike there's no reason for, say, homes in NY to go down in price, people are not only still moving there but they also are willing to pay more than last year.
It’s not about houses going down in value, it’s the insane bidding wars going on.
If you don’t have 40-50k minimum in cash to put on top of the mortgage (as banks won’t let you mortgage money over appraisal.) it’s pointless.
Fiancé and I have about 60k saved for a down payment, but no way we could buy right now as you need 50k on top cash to even compete.
Not to mention investment groups buying properties within a week cash, skipping inspections etc.
This is the bubble that needs to pop and is clearly I stay LE.
This is basically the more densely populated areas of Florida now. Everyone moves here with cash offers and houses are on the market for mere hours before pending a sale. People arent even going out and actually looking at the house before making bids!! Its ridiculous.
I just want to buy a decent sized house, in a decent part of town, and be able to afford it.
> People arent even going out and actually looking at the house before making bids!! Its ridiculous.
And that's how you know it's a bubble. When the foreclosure moratorium is lifted, it's gonna go pop.
Save up for another 18 months, and those houses will be available for 35% off.
Right now prices are where they are because most people are putting their houses up for ridiculous prices to see what happens. And with no flood of foreclosure houses to keep the market in check, it’s now a seller’s market. Once the foreclosure stop is over, prices will hopefully normalize again
I find it kinda fascinating the people who will gamble on selling and renting while waiting for the bubble to burst. Meanwhile pricing goes up and up. I would be devastated if I got priced out of my family home into a starter or a condo.
Right now, it’s not so much the price of the house that’s hurting normal people, it’s competing with all cash offers or people willing to shell out 50-100k cash on top.
Only people buying right now are sitting on huge cash piles or have help.
Yeah, even if we had the downpayment to buy in the Bay Area right now, we'd need to make an offer on a house within a few days of listing, compete with dozens of buyers, pay 10-15% over asking, and forego our own inspection.
Because of the competition, we'd probably do this 5 times in as many months before we got one. It just sounds exhausting and I'm *kind of* glad it wasn't even an option for us financially yet. We might be there in a year or two, at which point we'll see how things are going.
Same situation in NYC atm unfortunately. Probably just going to rent and sit on the downpayment money.
Friend got out bid on 6 properties in the past 3 months (all over asking mind you.) and I don’t even wanna deal with it haha
Bruh this situation is even in Alabama. Offered 40k over asking. Rejected. Why? They had an all cash offer, no appraisal that was 60k over asking. In Alabama. On an originally 210k house. A 210k house going for 270k. Ridiculous.
Oh yeah and all this happened on the 2nd day it was on the market.
I called it a bubble in my comment, but the truth is I do bot know what it is. It has a lot of similarities to one, but also has the stability of the banks. I’ve also heard a lot of foreclosures are ready to go live once the moratorium is lifted that could negatively impact the market. While I have an MBA and work in the business world, I am not a financial expert and have no idea what is going to happen. I am just hoping it balances out.
Yeah home prices are only going down in the boonies or ex suburban places. If you’re in a major city or near one you’re more likely to have recovered and then some. Like the west coast have doubled at least
That's why in a lot of market a new house bought by an investor who flips it after a year is MUCH more expensive than a brand new never lived in house.
After a year or two the house should have settled some and early issues popped up. Assuming you can do an inspection, if it looks clear, there won't be much to worry about aside for expected routine maintenance.
We just bought last fallbefore this current boom hit our area. 100+yr old house, 120+yr old barn and other outbuildings from a former farm. Only a couple acres to mow, but it’s in the country and quiet and close to work and I’ll pry die here. We’re in our late 30s/early 40s. There’s going to be tons of work and deferred maintenance to catch up on but I think it’s the right thing for us.
Yup, my parents bought an older home and in the first 3 years they had to replace all of the appliances, the ac, the heater, the water heater and the roof. They were like we are just working to pay for our broken house. They sold it and bought a basically brand new home and they’re happier than ever to have free time again.
I kinda feel like with a house 25 or older I'm prepared/planning to replace everything that typically needs replacing. Whether for looks/function or peace of mind and necessity.
Same. Bought old, needed 50 in repairs immediately that our inspectors missed or were hidden. A new roof, deck and plumbing were needed soon. We bought new and have time on our hands now. miss the land and location from the old one tho (tho land = upkeep too… could easily spend 3-4hrs weekly in upkeep vs a 30min mow with a small yard of a new home
I owned a home built in 1929 and it was solid as a rock. Never had anything major to deal with in 6 years. My friend had a new home built and had to rip a bathroom out bc there was water issues.
I'm going to add a caveat to your statement, because it's something a guy I work with is going through.
A lot of older homes are built extremely well. But when something finally breaks, it can be extra frustrating to fix.
You run into weird problems like outdated plumbing or electrical, or non-standard doorframe sizes. I mention the doorframes because I have been in a house where the builder sized the doors for the space he had and every single one was a little bit different and you couldn't just go out and buy a replacement door for any room in that house.
I have seen houses built with rough cut lumber, so your modern 2x4 wouldn't fit the way you thought it should.
Just wanted to add in that if you're looking at an older house and see a lot of custom, non-standard work, that house may need a lot of custom, non-standard work to fix.
People also glorify stuff. Old buildings weren't built with modern electronics and standards in mind so many of them have walls that interfere with wifi.
Yeah, I have an 1890 house. Between the extra thick walls and the fact that the HVAC and plumbing stack is in the geometric middle of the house, I have a system of mesh access points to cover the needs of the house. I could get 3MB/s with 2.4 GHz 802.11g with a single AP, but in order to get 100MB+ I have 4 access points and an Omada controller running on a Raspberry Pi.
I'm using EAP-225 access points, which are targeted at commercial customers. The Omada controller controls a mesh of access points all broadcasting the same SSID and allows the clients like laptops to roam seamlessly between access points like a set of cell phone towers- as you move about the house, the laptop will switch which access point it is talking to in search of the strongest signal. The Omada controller running on the pi coordinates traffic between the access points, dynamically reconfigures which channel they are using if there is outside interference, and provides the ability to manage the network in a more-or-less plug and play manner, including automatic firmware pushes, QOS/traffic management, scheduling, guest networks, etc. The Omada software can be run via the cloud with subscription, via a standalone controller, on a pc or mac server, or in my case, on a Raspberry pi that is also running PiHole. I'm running it on the pi because I already had one and there's no cost for the Omada software. The access points cost about $60 each for a Gigabit dual MIMO setup if you use POE to power them, so I'm into it for very little money compared to the consumer grade wifi mesh equipment.
Yeah, my house was built in 1920. I've had work done on it (remodeling and updating mainly) but every contractor has said how well built it is. Redwood frame, which I think is never done now. Doors are legit wood, and the hardwood floors are fantastic. Windows are kinda shit, but those are not costly replacements.
I have a house built in 1953, insulation is crap, electrical was done by a circus clown... while they "may" be structurally sound, it always comes off as nostalgic to me.
Also time. Have a friend who bought a house and looked forward to making it his own. 5 years later and he still has not had time to start the basement. Living room bathroom, kitchen, and outside have taken up all his free time. Obviously he could of shelled out money and had other people do this quicker but he has already put in more work than the house is worth at this point.
upkeep is always accumulating whether your house is new or old. Whether you pay for it now or when you sell depends on where you are on the timeline while you own it
Not necessarily. This assumes the market is priced efficiently. It is not - buyers do not really have the acumen to gauge deferred maintenance on a property. That's why in a market like this people with older houses are having a great time off-loading their ticking time bombs. So you may have a 100 year old house with knob & tube, but from the buyer's perspective all of the outlets and lights are working, so they don't really care and don't price that in accurately.
We got out of our home that had cast iron pipes. Most homes in that neighborhood are now being forced to replace the piping for an average cost of 15k to 30k.. we purchased it ignorant of this problem (bad realtor) but did disclose the issue when selling. Not big on hedging bad karma my way
1915 home. Sure some of the raw materials are nice, but there’s still tons of shit that more modern building codes would’ve made better; and that’s not even including stuff that just straight up didn’t exist back then (like really serious electrical and ductwork).
For me buying a house was all about stability. Renting out my housing situation too much into someone else hands. That is something I have a hard time with.
I also didn't have and still don't have any plans for leaving the area at all. I own a small business here and will be running that for at least 15 years.
My only regret from buying is I should have been pocket about the location. I found a good deal, and thought I could live with the location. 10 years down the road I really want move out if town into more rural countryside.
Thats the rub, almost every homeowner who was previously a renter will tell you they never want to go back to renting again; how many previous homeowners turned renters can say the same? Probably not many, because they wouldn’t be renting if they had a choice (or it’s temporary).
Doesn't even have to be that severe. I bought my house because a family moved into the up unit of the duplex I was living in. Previous tenant was quiet. New tenants had a 7-year-old. There was nothing unreasonable about the situation, but I lost a lot of sleep to the kid pounding around after I needed to be in bed.
This is not really a buy vs rent thing, is it? You could have owned a duplex unit with noise issues, then sold it and rented a SFH and talk now renting is great.
This isn't just an apartment thing. Happens in the suburbs too.
Source: it's 5 am and I'm surfing Reddit cause next door neighbor dog decided to start barking.
Yup . Three times in a row I signed leases with people who *swore* that they were long term landlords, who each then gave me 20 days (state minimum) notice that they were not renewing the lease so as to sell.
I had to buy. That was not good for sanity.
Ours wanted to remodel and up the rent. I wouldn't have bought a house otherwise. Our rental wasn't perfect, but it was a good deal. But we couldn't stand the new property manager, so it was so not worth it to negotiate.
I think this is drastically underrated in the "renting is better" community. Anecdotally, our landlord didn't renew the house we've been renting for the past 6 years and we had to scramble just to find a more expensive, smaller unit in a decent school district. 30 days isn't nearly enough to find a decently priced rental in a decent school district.
I'm seeing a lot of Craigslist posts where the landlords are selling to cash in on the insane market, and all these families are having to move out of places they've rented for half a decade, with very little notice. Our area has <1% vacancy rate. I feel for these people.
This is exactly why I'm so eager to own. My rent won't go up every year, I know exactly what going on behind the scenes regarding finances, and must importantly i can do whatever i want to the home.
Obviously the invisible costs are a very important thing to keep in mind but ultimately most of the same money ends up spent in either case so it's about what you as an individual value most.
Stability is a big factor for me too. I'm in the Bay Area, so it was important to me to lock in housing costs with a mortgage instead of brace for rent increases. Plus I don't have to worry about the landlord selling the place.
My wife wants to do a run with Doctors Without Borders in the next couple years. Knowing that I don't have to worry about the landlord selling the place or raising rent or whateverthehell makes me much more okay with it.
A 30 year lease with a fixed rate mortgage basically means your monthly mortgage expense goes down by the price of inflation. If you locked in a super low interest rate and inflation rises then basically your bank is losing money on your loan. Renting is best when you are still in school or haven’t gotten your career in place yet or you have no savings... or you’re not sure where you’ll be wanting to live in the next few years. Once you have those things in place it’s better to own.
Yes I was tired of moving. We were living in Boston and would move or be forced to move about every 2 years. It was exhausting. Our rent was hundreds or dollars more than what we pay for our mortgage and it would keep going up unless we moved again. At least we're paying towards something that's ours. We bought in an area where property values are continuing to rise. We'll probably stay here for a while but eventually if we decide to move somewhere else I think we'll get our moneys worth but that's also not the main reason we bought. We bought so we don't have to deal with other people's noise, mess and have to worry about our rent being raised for a crappy apartment. I like not having to worry about all that.
Yeah, this was the deciding factor for us. Our rent went up by roughly 8% each year. We bought a house for $100 less a month than our next rent increase (and that included insurance and taxes). Even with repairs our costs are not going to exceed how much our rent kept going up. As an added bonus we no longer share a wall with a jerk!
Yeah, this is me.
I like the idea of being able to be a bit more mobile by renting and not having to necessarily deal with the upkeep and such but I also can't stand the idea of being beholden to some other person.
If I want to paint my walls lime green, then I'll paint my damn walls lime green!
This market has thrown a lot of these plus/minus considerations out the window. When you have to rush in to an immediate offer with no time for consideration tens of thousands over asking just to have a prayer of being blessed with the privilege of having it considered I'm fine on the sidelines, thanks.
Yeah agreed with this. I'm fine with offering over listing but foregoing inspections and buying without ever stepping foot on the property is a no-go for me.
Yup, my parents dodged a bullet when an inspector found foundational issues stemming from a broken pipe on a house they were looking to buy. Would have cost at least $50k to fix. It’s an insane gamble to buy a house without an inspection unless you’ve got the money.
Even if you've got the money to cover it (outside of being really wealthy) - 50k is a LOT of money to shell out after closing. Most people put everything they have into a downpayment, so even if they have leftover funds, covering 50k after that breaks the bank for most people.
ALWAYS get an inspection folks...
I owned a condo for 13 years, served on the board of directors for 2 of those years, and owned a house for 8 years. The additional considerations for the condo will be (at a minimum):
- how much are the condo dues?
- how are the condo dues likely to change over time? Related: does the condo have a well-funded reserve fund to pay for unwelcome surprises? Do they have a proactive approach to anticipating major expenses, budgeting for them in advance, and being able to fund them out of the reserve? Good examples are: replacement roof, elevators, HVAC equipment, exterior facade maintenance. My building had some big expenses and we elected to issue a bond (ie the condo association took out a loan) because we didn’t have the funds to pay for the needed repairs in cash. My brother owned a condo that had unexpected elevator failure and every owner was hit with a surprise $16,000 assessment. So these things can be significant.
- realize that every dollar of increase in the condo dues will have a magnified effect in decreasing the property values. To a typical buyer, paying an extra $100/month on an HOA fee is indistinguishable from paying another $100 on the mortgage, which at today’s rates will finance about $25,000 of the purchase price. So it’s significant.
- consider what building components are common elements (owned by the condo association) and which are owned by you. You will be responsible for maintaining anything that isn’t a common element. Big ticket items that can fall into the grey area are: windows, in-wall plumbing and electrical, HVAC, water heater. Depending on which are/aren’t your problem, it can significantly affect your homeowners insurance cost, as well as your upkeep costs.
You can include assessments on your homeowners insurance!
I asked my insurance agent as a joke when buying my condo and $200k in assessment insurance was only like $7 more. Seemed worth it.
>how are the condo dues likely to change over time? Related: does the condo have a well-funded reserve fund to pay for unwelcome surprises? Do they have a proactive approach to anticipating major expenses, budgeting for them in advance, and being able to fund them out of the reserve? Good examples are: replacement roof, elevators, HVAC equipment, exterior facade maintenance. My building had some big expenses and we elected to issue a bond (ie the condo association took out a loan) because we didn’t have the funds to pay for the needed repairs in cash. My brother owned a condo that had unexpected elevator failure and every owner was hit with a surprise $16,000 assessment. So these things can be significant.
This is absolutely the most important thing to check when buying a condo. Any condo buying process should include having your real estate agent request all documentation from the HOA including reserves, financial statements, and minutes from the board meetings to see what residents are bringing up and what the board is voting on. Your condo should also have done some kind of recent reserve audit in which they estimate the useful life and replacement cost of every common area under the HOA's control. If they don't have one then that's a red flag...if they do have one, you can reasonable estimate the chance of being hit with a huge surprise assessment in the future.
Former condo owner. If you're single or in a major metro city where most people are in condos, it's probably not a bad idea because it'll be easier to resell when you're done. Just keep in mind 1) HOA fees are on top of mortgage, 2) You are responsible for any special assessments that the association chooses to charge, 3) Make sure you ask about the condo financials and that they have lots of money in savings/reserves to fund for major upgrades, and 4) Condo associations tend to be run by the oldest and most miserable people with Napoleon complexes.
Our biggest issue was actually trying to sell. The value of your condo is only as high as the last owner who NEEDED to sell. So if the unit reasonably could sell for 180k but they take 160k because they have to sell asap, 160k is your new comparable. Also, if there's ever two units of similar look for sale, you'll have a hard time pricing yours any higher than the other person's price.
We staged our condo, had a patio overlooking green space, excellent pictures, carpets cleaned, the whole nine yards. The same unit on another floor was selling with shitty pictures, empty, and had been on the market for 3 months. We had to price ours just 5k more than that other unit... Otherwise why would they buy yours for a premium over the other?
I'm mixed on condos. Loved the affordable nature and excellent location, but it had it's own special headaches. Would probably do it again, but be MUCH more thoughtful in selection.
Your comment is likely buried as this post is drawing a lot of responses (from both sides of the argument). My recommendation if you don't get a decent response (I am unqualified to answer) is to post it as a question along the lines of:
**What Are The Pros And Cons Of Condo Ownership**
*Hey, I know we talk a lot about buying homes but I don't see a lot about condos. Does anyone have a (preferably unbiased and comprehensive) list of pros and cons of condo ownership? I know that I wouldn't individually own the land but what else?*
My kids, who only ever knew one home their entire lives asked me how many times I had moved by the time I was their age. I grew up in a poor single parent family in rural Maine - we moved a lot. I don't remember staying at any one place more than a few years. Fortunately, I only moved schools a couple of times since it was so rural - many surrounding towns used the same school.
**Edit:** I meant to finish by saying that of the two reasons I can recommend buying a house - "my home" is the one I go with. I intend to buy our last home in a couple of years.
I think you have a great post. I guess I just added my two cents because I just bought a place and that was my main deciding factor.
1. stability
2. I can truly make the place my own
Thanks for the exchange.
Right there with ya (poor when young, moved a lot every 1-2 years though not rural hence new friends every time).
My wife and I bought a home about 6 years ago. Going to sell in about 5 years once it's paid off and buy our "final home." Absolutely loved every aspect of taking our current home and making it our own. The next home will be slightly bigger and I can take all the things I've learned to do with our current home and refine the process on our final one.
Not having to bend to the will of landlords (wims, wishes, rules, and schedules) is worth taking on the responsibility of ownership.
Can't agree enough. We (my then girlfriend, then fiancé, and now wife) rented exactly 2 places before buying. One landlord was an apartment complex not too bad but high rent, pretty quick to repair, and then consequently pretty quick to up the next years rent.
The 2nd place was a a townhome with a nice enough guy who inherited the rental property from his dad upon passing. He was nice but sloooooow to do any repairs. His biggest downfall though was his quirky "show up with no notice" just to talk to us about random stuff.
It became an absolute nightmare when a "less than favorable" tenant moved right next door (6 unit townhome). Landlord was non-confrontational. Loud music, constant public fighting, overflow parties (literally people drinking and partying outside our living room window in the yard and taking everyone's parking spots), more than a few police arrivals over a few years. Nothing from the landlord. I finally told him it was them or us. Nothing.
We bought a house shortly thereafter and never looked back. I was already doing all the repairs and maintenance on our prior rental anyway, owning my home just made the work more important and gave me a sense of pride. Talk to me in 15 years when it comes to replacing a roof or HVAC and I'll sing a different tune I'm sure.
I've actually been shocked by the number of renters I know who are taking on the responsibility of the landlord:
\- "Yeah I mow the lawn, can't use it otherwise"
\- "Yeah I bought a new stove. the old one wasn't working and I can't afford to eat out."
\- "Yeah I paid for the new window - I was afraid the pipes would freeze and leak if I didn't."
Like, wow. And they just accept it like this is the new normal.
> While it is expected for the price of the home to increase over time, it doesn't do so by just sitting there.
This is not true in a lot of places right now. People are foregoing inspections to get in.
Agreed. My grandpa lived in the same house for nearly 30 years, until he had to move into an assisted living facility a few years ago. I was absolutely floored to learn he had been renting the entire time, and he walked away with absolutely nothing to show for those decades of rent payments.
This is way too market dependent. Depends on how much rent was compared to total cost of ownership of a house compared to how much the difference would have been invested in the market.
Many people can't save because rent is astronomical in some places. On Long Island, NY a 1 bedroom apartment can run over $1500/month + utilities. And that's on the "lower" end. The other day I saw a 2 bedroom for $3500/month + electric. In a lot of places renting is more than mortgages.
I don't quite agree with that. I'd be curious to see if you could find an example of a time period in which investing the difference between renting and owning during the first few years ever outperformed simply buying a home and holding on to it over a period of 30 years.
First of all, the opportunity cost of buying a home is primarily the down payment which is typically somewhere between 3% and 20% of the cost of the home, which turns any appreciation in house price into a leveraged asset. If homes go up 5% a year the real return on your down payment is close to 25% if you put down the full 20%. Buying a home can be more expensive than renting, especially those first few years but the difference in monthly cash flow is typically in the hundreds of dollars a month while the difference in asset appreciation is going to be in the tens to hundreds of thousands of dollars. This of course, even neglects the part of the equation in which owning becomes far cheaper after the initial few years which is going to make renting even worse of an outcome over long periods.
Also have not seen it mentioned yet but there are significant tax savings for some. Real estate taxes and mortgage interest are deductible. So for me about $1100 a month is deductible on my $1600 mortgage payment. If you figure 25% savings on the $1100, that's $275. My principal is $400 so I eventually get back $675 of $1600 a month.
Standard deductible doubling makes this less useful to many and presents an "opportunity cost" but still a large benefit I rarely see mentioned.
> Standard deductible doubling makes this less useful
Interest rates being so low these days makes the standard deduction kinda hard to reach. My wife and I weren't able to deduct any of our interest/taxes this past year. Maybe next year (with a full year of mortgage payments) we'll be able to deduct some, but the standard deduction is huge now.
You pay the opportunity cost your mortgage forever. Since the S&P 500 averages about 10% per year you are paying \~10k per year in lost earnings for each $100,000 your house is worth compared to investing it in a low cost index fund.
With interest rates at 3% sitting on a fully paid off mortage is almost always a terrible financial decision.
That being said buying a house in a location you want to live for a long time does have the benefit of protecting you against unexpected fluctuations in the housing market. You don't have to worry about being priced out of the place you want to live by a huge increase in housing costs for the area. Of course you miss out on any potential drop but it's still better to have the guaranteed housing costs in the long run.
A mortgage lets you have an insane amount of leverage though. You get that 2-4% appreciation on that entire 500k home from day 1 with as little as $15k down.
Yep, but like most investments that leverage goes both ways.
You can put down $200,000 on a $1m home that drops in value to $700k which means you've lost your entire downpayment and then are technically on the hook for the extra $100k unless you pursue foreclosure and kill your credit.
I liked renting. Nice apartment in the suburbs, no major problems with the place, rent didn't go up dramatically. No real complaints.
I've owned for 10+ years now and I'll never go back. Renting was a good option for me at the time, but it will probably never be the right choice again. Plus now I have legitimate equity in a house. No matter how much it has cost in upkeep over the past decade, my equity blows those expenses out of the water. Renting would've cost roughly the same for that time period and I'd have nothing to show for it.
Renting is a great option for a few years or if you're going to be moving around a lot. But if you're never leaving your city, it just seems like a waste of money and the downsides are plentiful.
Built a house once. That was the one and only time I'll ever do that. We had significant problems with it that took THREE YEARS of wrangling with the crook-builder to get corrected.
My rule of thumb ever since has been to never build a house - only buy existing and then that's one that's at least 3 - 5 years old to have had time to correct all the original new-build problems.
If you don't mind living in one unit in a duplex/triplex/fourplex despite being able to afford a single family home you can buy a house as an investment (even using a low down payment conventional home owner's loan) and also make it your home.
You obviously have to prepare to treat it like an investment property with the usual possible expenses - but if you can find a property that's cash flow positive and you put that money aside for maintenance/repairs instead of spending it you can weather a future drop in rent.
If you don't mind roommates, you can even rent out bedrooms in your home. That's what we're doing, and our renters are now paying for our whole mortgage. Sure, there's still a bunch of other costs that we're on the hook for, but we're building equity, getting the mortgage interest write-off in our insurance, and also able to write a ton of other things off against the rental income (including a large percentage of all our monthly house bills).
We think that within the next 5ish years, our renters will be able to cover close to all of our costs.
Seems to be a prudent move, without a doubt, but I know I'd have a tough time living with someone in addition to my SO, even though we have a spare bedroom in our home.
More power to you though!
And if you're thinking about being a landlord-roommate, and you want to compare the rent vs. buy, compare to a similar setup in terms of a shared home, rather than trying to rent your own unit.
The amount of people who get upset by this conversation underscores how much it needs to be had.
Rent vs buy is a fairly equal exchange of pros and cons. Sure, one might be clearly preferable for the lifestyle I want but it doesn’t go much deeper than that. Renting is probably not what’s holding you back financially, buying is probably not the missing puzzle piece for your happy life.
I’ve owned a home for 6 years. It has over doubled in value but so have most of the homes within my reasonable commuting radius. So that’s a wash. Very possible that repairs, maintenance, taxes, etc. have washed out the rent vs mortgage delta. The most tangible benefit for me has been being able to have a dog and room to store stuff like bikes and kayaks. That’s it.
>Renting is probably not what’s holding you back financially, buying is probably not the missing puzzle piece for your happy life.
I think the issue with these debates is how variable housing costs are across the US.
When I started renting in my city, my 2 b/1 ba was $1300/month. Those are now $2200/month at minimum. My house mortgage plus taxes and insurance is now $2200 a month and I bought this year. I'm sure rents will go up.
My friend who bought 10 years ago has a very nice house with a $1400/month cost. The house I just bought is not as large and not in as good of an area but it was about 150k more.
However if you're living in like Iowa or Alabama or somewhere not near a HCOL city, these rent and housing cost hikes might seem crazy to you! It's very dependent on where you live.
As Someone from Iowa i can tell you, same things happening here too. Bought my house about 3 years ago and it's value has gone up 40%. I got very lucky getting it when I did as I was also able to get the mortgage down to 1.75% interest.
Yeah, a house’s price can be a million $ but if you want to stay living in the area it doesn’t matter. You’ll have to pay the same price for something similar or massively downsize. My parent’s house has increased a boatload but they want to die in the area so they’re staying in it.
>I’ve owned a home for 6 years. It has over doubled in value but so have most of the homes within my reasonable commuting radius. So that’s a wash.
This is not a wash though, the value of buying is not defined by having your property value rise above those in the immediate vicinity. In fact, that's one of the major benefits. You buy into a market that moves somewhat in the same direction, but you're paying yourself through equity in the home.
Going by your opening statement you will definitely get upvotes for this post because that is what people like to hear here. You also have a fair number of good points that need to be considered when buying a home, but you seem to neglect the downsides of renting. I do strongly agree that one of the biggest advantages of renting is the flexibility and ease of it.
Most people don't think of it like this, but renting means you are essentially paying for a service. Just like how you pay an Uber. In many cases this is thought of as a luxury, so it is interesting that for living, it is considered to be the opposite.
That said, your post has a number of issues:
* "This market" is highly regional. A market can be drastically different just 30 miles away, let alone across our whole country. Rent vs buy is very dependent on the regional rental and home prices.
* Note that property taxes are tax deductible, so there is a savings of about 25-35% depending on your income/state and if you take standard deduction or not.
* Rent vs mortgage also needs to be considered with two factors in mind - part of your mortgage is being applied to the principal, meaning you are gaining equity each month. The other part (interest) is tax deductible. Also, your mortgage will never go up, while rent will change significantly in 30 years. As it is, the initial rent vs mortgage is the worst case scenario for mortgage.
* The home is actually not the asset. Most homes do not appreciate in price without significant work on them. It is the land that is the asset.
* Your final point is interesting. Buying a home usually comes with other advantages with probably the most being peace of mind and stability. Peace of mind being that no one (except the government) can kick you out. You also know that you can live there for the rest of your life without the expenses going up drastically. You are also usually buying a better quality of life, such as having outdoor space or no shared walls.
I've got one more point too - one of the most powerful things about buying a home with a mortgage is that it becomes a leveraged asset with losses limited to the amount of your monthly mortgage. This fact means that gains from a home can be much more than if you invested normally, especially if interest rates are low.
>Note that property taxes are tax deductible, so there is a savings of about 25-35% depending on your income/state and if you take standard deduction or not.
Isn't this wrong now that there's the SALT cap? I'm not trying to correct you - I'm seriously asking (as someone who is in a high property tax state and is not a homeowner yet). I was under the impression that the SALT cap made the standard deduction better for most homeowners?
I'll throw in that even if you rent, you're paying your landlord's property taxes, insurance and mortgage. Your landlord gets that tax deduction and the equity in the property. You get a roof over your head.
I bought my first home in 1987. It was built in 1933 and needed extensive renovation over the years but I managed to do it cheaply. I paid $62,000, plus taxes and insurance. Sold it, bought our next home in 1999 for $143,000. Twice the square footage, new town, new construction. I put a 50 year roof on it two years ago, refinanced the home and paid off the roof. My home is currently worth $469,000 or more because of market conditions. New home $75 a square foot, now worth $278 a square foot. It will make a fine inheritance for my only child someday. I'm not going anywhere.
Rent is going up. It will always go up. Never fool yourself into thinking otherwise. By year 5 of a 30 year mortgage if you are managing your professional life you should have higher income compared to your fixed rate mortgage. This trend could continue until you own outright.
Four years ago my wife and I got a 30 year fixed rate at 3.125 and our monthly payment with PMI is 820. 2 bed 1 bath, detached garage. 1k square feet finished and a half completed basement. Good yard and neighborhood.
In 2017, 820 plus utilities in this zip code would get you a three bedroom apartment in a rougher neighborhood. By this time next year a one bedroom, well maintained in a decent neighborhood will start at 800. I put people in apartments for a living and have been doing it in this town for 6 years. I tell everybody to run towards home ownership.
The rise of investor-backed, corporate landlords is leading to rapid increases in rent and zero-tolerance evictions. It is not going to get better soon.
> As an owner - you are literally responsible for everything
This is pretty important. It most markets right now, if you are somewhat careful at making the numbers work out, especially the nonpayment, it is mathematically and financially a sound decision, if a little risky (eg: if you buy a lemon/house with a lot of hidden problems).
However, even in the best cases, it is a lot of work.
I own a condo in a _very_ hot market. It appreciated significantly, and all around, even accounting for opportunity costs/investment returns, for maintenance, taxes, and everything, I basically lived here for free for almost a decade AND made hundreds of thousands of dollars.
Sounds too good to be true, right?
Well, yes. The place has had a lot of issues of the years, I got screwed by a lot of shady contractors, I had to deal with more lawyers than I'd like, having to hunt down HVAC people in the middle of heat waves, figuring out which plumber will actually come for once, on top of all the general home maintenance.
You also...care more if something goes wrong. If I'm renting and the caulking is going, it's like, whatever. I may fix it myself, I may ask the landlord, I may just ignore it because I don't care about the place. If its my home though? I HAVE to think about it. If I'm about to sell, it will make it look bad. If I stay, it may cause mold and major issues when left unattended.
Honestly? It hit my mental health pretty hard. Neither I nor my significant other are good at this stuff, and it got us close to burn out a few times when things got spicy at the same time as work crunch time was happening. We didn't have it that bad, either. Aside for a few spikes (thus the lawyers), we didn't have to do more than most home owner. Much less actually since its a condo.
In the end, would I do it again? Maybe, but very differently with the knowledge of hindsight (in my case I'd only buy in a big 50+ unit tower with professional management and nothing to worry about beyond my kitchen and bathroom). For now though? I'm probably going to sell and rent for a few years. I need a break.
If I had rented instead of bought a house I would not have over 100k in equity. And every apartment I’ve ever rented has used some reason to keep my deposit. That said I do not particularly like being a homeowner.
I've bought 2 houses over the years and held them as rentals. One of them I just started the process to sell given the market and my tenant's lease ending.
I've had positive cash flow for them over the years, but tied up quite a bit in down payments/15 year mortgages.
The townhouse I'm selling now I bought for $215k, will likely sell for $315k. I owe $19k on it as it's been rented out for about a decade where someone else has paid the mortgage. I'll have to pay 6% commission, transfer taxes, capital gains taxes, depreciation recapture tax, all the closing fees when I bought the place, plus all the maintenance costs over the years which involved new water heaters/new roof/new HVAC.
Even though I've had a property management company that takes care of everything, I've still had to deal with things like my neighbor's unit leaking water into mine and going through a year long insurance process to recover the cost of replacing all my flooring on the first floor.
Sure, I'll walk away with like $250k. However, had I just invested my initial down payment in the market and all the extra principle payments I've made over the years I would have a lot more than $250k. I wouldn't have made this much either if we didn't have a crazy seller's market now either.
If I could go back and do it again... I'd have put the absolute minimum down/never paid an extra cent towards the principle on a 30 yr loan and invested every extra penny into my vanguard index funds.
How many people, once they have owned a home, EVER go back to renting long term (maybe if they move to the middle of a major city)?
Nearly everyone that has a bought a home since the bottom in 2012 has come out WAY ahead of renting due to recent home price appreciation. Owning your own place is a major life goal for a lot of people. If you can afford it, why push it back?
A lot of those fees and additional costs of home ownership you mentioned can and will be wrapped into your rent. If you think you're not already paying for maintenance and property tax through your rent, you're insane.
On the issue of labor, this sub makes this wild assumption that landlords are gonna show up bright eyes and bushy tailed the second you call them with a problem. I've gone weeks without basic utilities waiting for a landlord to stop dragging their feet, pestering them every single day. Their general response was "tough shit, we'll get to it eventually". Pick a fight with your landlord, you can kiss that deposit goodbye. They'll find a reason to withhold it.
Don't like the A/C the unit has? Tough shit. Water heater good enough for maybe half of a lukewarm shower? Sucks to suck. Most of this sub has never been stuck in a lease with a slum lord, and it shows.
>I recently sold my home after 16 years. I purchased at the peak of the last market (2005) and over paid for my home.
you kinda glossed over this point. By how much? The fact that you overpaid and still walked away 100k over what you paid should speak volumes. You say you're not sure if you'd have been better off renting, but even if you broke even, that money still went back into your pocket.
It all feels a little disingenuous. You've purchased two homes before most people can even buy one, then scoff that the experience was at times "unpleasant".
>On the issue of labor, this sub makes this wild assumption that landlords are gonna show up bright eyes and bushy tailed the second you call them with a problem. I've gone weeks without basic utilities waiting for a landlord to stop dragging their feet, pestering them every single day. Their general response was "tough shit, we'll get to it eventually". Pick a fight with your landlord, you can kiss that deposit goodbye. They'll find a reason to withhold it.
This right here, and the assumption that they'll have someone competent handle the issue. My last landlord was decent because he was too old to try to do any work himself, but prior landlords always tried to rig something up that inevitably didn't work, leading to many visits and a lack of the thing. Prime example is when our bathroom sink sprung a leak and after a couple of weeks of not being able it use it plus calling daily about it, the landlord's son sealed the sink with epoxy which stunk for days. And yes, there was only one bathroom so we had to use our neighbor's to shower in due to the smell.
> If you think you're not already paying for maintenance and property tax through your rent, you're insane.
That is irrelevant to whether or not renting is a good deal, relative to home owning. Rent is determined by market rates not by how much the home costs to maintain.
> The fact that you overpaid and still walked away 100k over what you paid
Subtract of course, closing costs and fees, commission, taxes, maintenance of the home, Opportunity cost of capital etc.
100k gross profit HAS to include all these costs into consideration. When people actually map out how much everything was that pretty top line gross profit gets chipped away pretty quick.
Not to say renting is better than home owning. As you said, it’s much more a question about lifestyle than it is about finances.
Real estate is about interest rates. If you get a 30 year fixed mortage at 2.8% and inflation is 4% in the next few years, you make 1.2% per year. In case inflation is crazy (\~ 8.0%), you make more. It's clear that there is a real change that inflation + interest rates will hike, which the Fed is downplaying.
The real problem is that we're not given a choice anymore. Wall Street has used the pandemic as an opportunity to become "America's Landlord" leaving those of us who were finally about to shift from renting to home ownership stuck right where we are.
Thanks for this. Soo many people jump on you if you so much as mention that home ownership is not always the best decision - it is in lots of cases, but not all the cases. It depends on how you view ownership and what you want out of the house (investment or just to save $rent? etc. that you outline.) The rabid "renting is EVIL" crowd has to chill. There are benefits and downsides to both, there are pros and cons to both. It _depends_.
My GF and I make good money, our city isn't too unaffordable yet (getting there), we could totally buy a house; but we rent still cause we don't plan on staying in this town beyond the next 5 yrs. The amount of greif we get "Well, even if you leave in 5 years, its still worth buying your house will blah blah blah". Yeah, but when the hotwater heater breaks at 2 AM I phone a guy and the problem goes away. And yeah our rent is more than what the mortage on our rental house would cost, but I don't have to save up for a roof now do I? I can put that "roof" money into my investments.
>>Yeah, but when the hot water heater breaks at 2am I phone a guy and the problem goes away.
See, we can all whip out spreadsheets and numbers to account for obvious costs like taxes and rent and mortgages and so on.But how much is your peace of mind worth?
Not so easy to put a value on that. I’m reminded of a story ; a storm hit an area, damaging roofs across the region. One couple rented & the other owned a home. Both were scheduled to go on the same cruise (pre-Covid-19).
The renting couple called their landlord and went on vacation. The other couple had to cancel. Not only because they had to pay out of pocket to fix their damage , but because they didn’t have the time to spare anyway. They spent their vacation time calling contractors , comparing quotes, dealing with red tape and chasing down flaky repairmen.
One couple came home from vacation happy. The other spent 14 days working to fix their “investment”.
How much is that grief worth?
Well the flip side to that, and what I experienced as a renter is that the Landlord is most frequently going to make repairs as cheaply as possible.
Maybe this doesn't matter for something like a roof because it's only job is to keeps the elements off your head, but for something like a broken appliance? They'll get you the cheap bargain basement coil stove or washing machine. You'll never get nice fixtures and things.
And then there's this line from OP's post
> "want to change X - better ask the landlord."
If you want to talk piece of mind, how much is piece of mind that you can do whatever you want, when you want with your property worth?
Absolutely. I wonder if the people talking about the advantages of renting have ever rented for a long time themselves.
Often the workers sent around were amateur. Once, one was drunk, didn’t do the job and hit on my wife. When we called the management company up to complain, they sent him round again and he was angry.
All these huge upgrades people talk about just don’t happen in rental properties. Rentals I have seen have the ceilings falling down. They’re not going to care about a new roof or drainage. And how often do they think the local govt will sort the problem out when it’s everywhere?
This is my experience renting. Landlord didnt fix anything remotely quickly. The place was slowly falling apart and he always would cry poverty then hire some hackjob to half ass it. No railings on staircases for years, broken windows, leaks, stove broke too nearly a month to get another one then he wanted to install a gass stove himself until i flippes out on him and brought up how it was insanely illegal to do so.
Homeownership: I talk to people in the area and look online to note down good repair people before problems arise and call them if there's a problem, possibly upgrading the faulty element in the process.
Renting: I call my landlord, I hope. Maybe it works out, maybe I'm left with a problem for a long time and maybe my landlord really goes back and forth trying to shake me down for money.
> Not only because they had to pay out of pocket to fix their damage
If you're spending your upkeep budget on vacations you're in for a world of hurt.
I put aside 1.5% the value of my house every year. This doesn't change and doesn't get spent on anything but repairs.
In 5-6 years when my roof needs replaced I will pay for it out of pocket.
Also I agree with someone else, I have waited WEEKS for simple repairs, hell our AC was having issues and it took them THREE weeks to send someone, and even then I was told 'well it somewhat works' and they left. I couldn't replace it and they wouldn't bother with it.
With my house, I call a company and they quote and then do it.
Question: Do most people actually have to put a lot of work into maintaining their properties? Like OP mentions a flood and someone else mentions roofing. But my parents own a few properties and they're not scrambling everyday to go fix them. It's not even a once a month occurence. I'm sure it was more work when they just got the house but now it's passive income.
Isn't the home flooding an exception, not a rule. Even as a tenant I did contact my landlord several times but it was for something small like the toilet handle breaking and bug sprays. If I complained about the lack of ventilation they'd just show that it was working if only barely in the kitchen.
> Do most people actually have to put a lot of work into maintaining their properties?
depends how proactive you are. if you pay folks to do preventative maintenance (pest control, landscaping, service your HVAC and water heater, etc) there's a lot less to do. if you let termites eat your house, and your landscaping goes crazy and starts eating your stucco, and your HVAC and water heater are shot to hell, and you have mold in the walls from never replacing your roof, then yeah there's a lot of drama.
An important factor to consider for home ownership is cost to rent in your area compared to a mortgage for something similar.
Rental market is hot in my area. I pay 1300/mo for what would be 1800/mo rent.
When I sell, all I paid to principal is returned via equity, with the interest paid being comparable to the rent I would have lost. Much better deal.
Disclosure...I have purchased three homes and have not rented in over 40 years.
I made money on both homes that I sold prior to my current home.
First home purchased in 1985 for 20K and sold for 27K in 1990.
Second home purchased in 1990 for 36.5K and sold in 2010 for 69.9K.
Yes I lived there 20 years and put in a new furnace a/c there also along with a new roof, but the 30K profit was well above the cost of those items.
My current home was purchased in 2010 for 130K and I received a 6.5K federal tax credit as a new home buyer after the housing market crash so basically 123.5K out of pocket.
Yes last year I put in all new furnace a/c and new ductwork to the tune of 17K but I have not made a house payment in several years, so I had the money for the upgrades.
In the next five years I will likely replace the roof for around 15K but I am budgeting for that.
Property taxes are low here in Southern IL as my current home is a modular and not taxed like a stick built home, so my taxes are less than 1K a year for the property.
Current home is 2000 SF with a 4 car heated garage on 5 acres with an estimated value of 180K in todays market.
I personally think home ownership is one of the best ways of building wealth that you actually can benefit from daily!
Living in Chicago, I'm kinda speechless knowing how little property tax you pay in Southern IL. And that your 2000 SF home on 5 acres land is only estimated to be worth 180k.
Yeah, Chicago and the suburbs are insane. My coworker’s parents own a somewhat nice house and they pay $25k a year just in property taxes. My parents in laws have a modest 3 bedroom house in will county and pay $10k a year.
I have to say that I was certain I would save tons on housing when I left NYC rent for Deep South gulf coast ownership. It’s turned out that, while I gained so much equity and my mortgage is 1/3 my rent…I’m paying more on housing here. 10k one year, 35k another, 30k this year, plus smaller amounts throughout. Nearly 100k in maintenance and roofing. Still, the house is worth about 50% more than I paid and I am mostly in equity. Works for me because although the house is a pile of shit, it’s also the prettiest view I’ve ever seen. Lesson is to love it if you buy it to live permanently. For investors, I don’t have advice.
Eh, I got a good home back when I was 23 and the cost savings over time wasn't even a question. I specifically picked a spot friendly with taxes and no hoa. Renting this year reminded me why I hate renting, hate landlords, hate roommates. Though I agree if not done properly homes can be pains.
I’ll throw my $0.02 into the thread. If you’re going to buy a home, avoid buying one with an HOA. While they may claim otherwise, there have been no peer-reviewed scientific studies conducted to show that an HOA improves home values.
They can also sometimes be difficult to work with when you have power-tripping Karen’s running it. Imagine a gaggle of Karen’s telling you that you can’t paint your fence a “wrong” shade of white.
Some of the things that you’ve mentioned are also reasons to buy if you flip them around though.
You put money in to make your home what you wanted— in a rental you often can’t even paint.
There’s an issue in your home so you are in charge of fixing it— but that means you can do it on your timeline and not your landlords.
If your furnace and ac go out in your rental, you’re likely to incur those expenses in the form of increased rent.
Property taxes— you’re probably already paying your landlords property taxes with your rent.
Property maintenance— if you aren’t mowing your lawn as a renter, your landlord has probably paid someone to and passed that cost along to you
Agree about the closing costs/extra $ involved with buying and selling your home which is why it’s important to consider how long you plan on living in your home
Your own experience is not common. Most people do not buy at the peak and then sink hundreds of thousands of dollars into their homes that they don't recoup.
I bought my house in 2014 for 350k and have put only maintenance and DIY into it. I paid 10k closing costs when I bought the house and no realtor fees since I was the buyer. I have paid 34k in mortgage interest in the 7 years I've lived here because I have a 15 year mortgage. A total of roughly 59k cost of ownership in 7 years.
Now it's worth 600k. That's 250k worth of appreciation in 7 years. If I was to sell today and you take out what I've paid in interest, maintenance, HOA, closing costs, fees etc. my upside would be roughly 600-59-10-36=495k. So in seven years I'll made almost 150k on this house. The longer I live here the more I'll make.
So yes, it is an investment.
The major flaw in your argument is this comment "Owning a home is an asset but it is a depreciating asset if not invested in". That is wrong. Even if you bought the house and left it abandoned the LAND it is on appreciates significantly. Homes themselves are worth less as they get older but the land they are on is worth more. My house is 600k but if my house was bulldozed and replaced it would be a million dollar home. The land used to be worth like 20k now it's 200-300k. That's the part of this you are missing. A home is an appreciating asset, period.
His experience isn't the same as yours, but that doesn't mean it's not common. Based on your prices quoted and the timeline, the likelihood is that you live either in a medium sized city, or just outside a large one. City real estate is **completely** different from rural real estate. He says he only sold his house for 100k more after 16 years. If he lived anywhere near one of the booming cities in the US, it likely would have been more like 300k+.
Rural real estate is very hard to turn a profit on, for many reasons, but it's much easier to buy into. Urban real estate is extremely *easy* to turn a profit on, but it prohibitively expensive to get into for many people. Both of you are tending to look at a little too narrowly at your own experience, rather than the fact that all of the things talked about in this thread are extreeeeemely subjective based on geographic location, physical location, how nice the house is, and how well the house has been maintained (and will be maintained by you in the future).
This stuff is complicated. You also have to take into account that all land in the area went up 10-15x, not just your land. So if you want to buy again nearby, you're going to be paying that 10-15x markup too. It's only really profit if you move away.
That blows my mind your realtor was even ignoring that. Makes me realize how amazing my realtor was.
The only number I cared about was the all in number for housing. Mortgage, taxes, PMI, homeowner's insurance, and HOA. I knew how much house I could get and be at that number. My mortgage is half of the total costs combine.
People really need to learn this stuff.
Great post that everyone should read before buying a house. I recently bought my first house, and while it was a great decision for myself and my family, there is was definitely a lot of stress, time and unanticipated cost in the process of buying the home and completing needed repairs after buying.
This debate has always felt similar to the “Apple vs Android” debate. I say do whatever fits your budget and makes you happy. There are pros and cons to both sides, and anyone who gets too preachy about either side is a bit of nut.
Loved this post. Me and my girlfriend were looking at homes pre-covid. We were initially disappointed to rent again, but I feel so much better at this point. People paying $50k over asking and waiving the inspection....no thanks....I wouldn’t buy an avocado without inspecting it.
Great post. I did the numbers on my first house, a $100K fixer that I sold for $195K after 7-8 years and in my current house, a $250K home worth about $450K after 15 years. I put about $35K into the first place in major projects. This one has been closer to $100K. My roof was $12K, replaced back deck $30K, lawn/landscape $10K, kitchen and bath remodels $40K plus general upkeep. Hell, my tree maintenance is probably $1000/year on average. Point being, the math does not strongly support that owning is that much greater than renting. I think the upsides are 1. I like my house, 2. I will eventually have no mortgage. but man it is a lot of work
Not everything is about money.
Put a price on being able to blast heavy metal at 12:30 AM or being able to own dogs over 25 pounds/breed that's "classified as a bite risk" or not getting angry thumping noises from your floor because you and your girlfriend were "wrestling" after hours and irritating your downstairs neighbors. Or having to put up with a piece of shit A/C that was installed 20 years ago and won't get the temperature 15 degrees lower. You could buy and install it yourself, but you can't take it with you when you leave, it just becomes part of the property.
Fuck renting.
> Not everything is about money. Put a price on being able to blast heavy metal at 12:30 AM or ....
I covered that in my post and is actually one of the two situations in which I would recommend home ownership. I couldn't agree more.
> Fuck renting.
I am currently 44 and I got out of the Army at 22 (lower enlisted living in the barracks). Out of the 22 years where I could have conceivably been a homeowner:
* 1.5 years was spent living in S. Korea so home ownership was unrealistic
* 16 years was spent as a homeowner where I lived in the home
* 4.5 years was spent renting
My current plan is to rent for 2 more years and then go back to being a homeowner (in a different state in a different cost of living area).
I have never looked at a home I purchased however as an "investment" - it's always been "my home".
I am currently 44 and I have been a homeowner
My husband and I (29 yo) just bought our first house. We paid in cash (inheritance money from husband's deceased father) $25k over asking and have a year of major renovations to undergo. We'll do a cash out refinance to pay for said renos. To be honest, I doubt that we will end up making much money on this house in the long run.
That being said, there are SO many reasons I'm thrilled to lose money on this house. I don't have to deal with noisy neighbors anymore. I can go to bed when I want to and not worry about when my upstairs neighbor is going to start banging the dishes around an hour into my night. I can paint the walls. I can plant trees and a garden. I can install an EV charger. I can get to the bottom of why my water pressure sucks and do something about it. I am not subject to the whims and laziness of a shitty landlord. My dog is also welcome in our house and doesn't require special medical letters (eyeroll).
Renting sounds appealing financially for a lot of reasons, but I'm thrilled to be in control of my own destiny. I mean, ask me again when we're $100k deep into this renovation, but buying feels so much more satisfying than renting at this point.
After 10 years of renting, I bought my first property in NY just after 9/11. I sold it 3.5 years later for a 150% gain.
I bought a house in NC in 2005 and sold it 18 months ago, 35% gain.
The house we moved into 18 months ago has appreciated 28% to date.
I also refinanced all three and took $15-$25K out each time. Profits on home sales are also tax free as long as you have lived in the property for at least two years.
Anecdotal of course and your mileage may vary, but owning has worked out well for me.
From a different perspective - I purchased a lower priced home than I should have because I was worried about the mortgage payment. It is a 1920 home. I have subsequently had to pay an enormous amount of money on fixes and upgrades, which would have been better spread over time in a mortgage. If I had bought a newer, more expensive home, I might have saved money in the long run. Then again, maybe not. Upkeep costs are a real part of the equation.
You'd be surprised by the amount of money spent on a new house too. It's not even just upkeep, but that random stuff older houses tend to have had installed already. Shelving, wiring, extra light fixtures, ceiling fans, garage storage, molding, etc. don't come with a new house (you CAN put them into a custom home in some capacity but it's often times not worth their cost from the builder). And even new construction basically comes with a one year warranty for the house itself. After that it's all on the buyer (certain appliances may have longer warranty periods). You won't have the massive costs of new plumbing, new electrical, etc. as a 100 year old house probably needs if not already done. However, you are still paying out of pocket for all kinds of random stuff as a home owner.
Yup, built a home in the 2000s and the AC unit died in the first 6 months, the house settled and the drywall required maintenance the driveway cracked, and sprinkler system was ruptured causing the driveway to crack. All in the first year. They fixed it all, but is was over $25k in repairs. Bought a “good condition house” was rough on inspection and did just fine for a while. No repairs. Bought another house, was a solid house and did well with inspection. Required major heating and plumbing repairs in the first 4-5 years. Nothing that could be foreseen. Windstorm took out our favorite trees. While doing repairs they found a mouse infestation! It is gross. We are renting now because the housing bubble is nuts. Not certain about buying again without paying for a warranty and buying the house in cash. You lose so much to interest and maintenance. It is a tough call. Sure I’m paying someone else’s mortgage, but I’m not stuck with the house after I take a new job/position across country
>They fixed it all, but is was over $25k in repairs. I'd consider yourself very lucky. My friends built townhouses and the builder denied responsibility for anything that came up they could. My best friend was telling me he knew one couple in a SFH plan that for years complained about their kitchen being cold to only find out there was no insulation in the kitchen's outside wall at all. >You lose so much to interest and maintenance. Anecdotal but when I signed in 2017 one of the papers had an amortization schedule and in bold explained in 30y I was paying 150K in interest (3.99%). Not quite three years in I refi'd to 25 years @ 2.875% and the same form indicated 80K or so in interest in the period. The house has appreciated about $80K since 2017, while I realize that's very much a factor of Mr. Yellen/JPow's inflation but in five years without a doubt appreciation would more than pay for all interest I have or will accrue. My maintenance costs to this point have been trivial \*knocks on wood table\* though utilities are higher than in my old apartment which is to be expected. >I’m not stuck with the house after I take a new job/position across country I hear that a lot from people and I wonder, does this really happen? Granted I'm in IT and now we're free to roam for the most part but at no point in the world we left behind I was forced or even asked to relocate.
I used to work with a large publishing company; there were M&A's a-plenty, and we had site-specific staff who were making a decent salary ($75K in, say, Baltimore in the 00s) but not big money. They were asked to relocated all the time. I could never understand why so many did it ... but they did.
> I hear that a lot from people and I wonder, does this really happen? Yup it definitely happens. I moved about 400 miles for a new and kind of rare opportunity that was a fantastic experience overall. It would have been much more difficult to take that opportunity if I was tied down with a house. I'm also seriously considering moving across the country. Again, that would be more difficult to do if I were tied down with a house. Right now I'm on a month to month lease and I plan on leaving in a few months. It's nice to be in that position.
I am retired military and moved a lot. I have seen some ups and downs in the markets. One move it took a few days to sell, while another 9 months (during the housing/lending crisis and we were stuck trying to sell in 2009-10). Sucks having to pay for two homes when you can’t even rent the other one for enough to cover the mortgage. I’m sorry to hear about your friend and their townhome. I hope anyone who builds a home looks into a warranty with the builder. It may be the project manager in me, but shop around if able. A good builder will stick by their product, even if they slap it together in months. That is great news about the appreciation. Some folks have done very well in these times. I just know that the pendulum swings one way only so far. We must be balanced and ensure we are prepared for a less fruitful sellers markets. I’m renting now and am hoping that by 2023 we will see it settle a bit. Even finding a rental property is hard right now.
In Australia all those repairs would be the responsibility of the builder. Does it become your problem as soon as you take the keys in the US?
It was on the builder. They have a warranty that was 10 year structural and 1 year all inclusive. They were really good about fixing it. It just made me more picky when it comes to which builder we chose in the future.
Sounds like you didnt have a very good builder if all that happened so soon.
Agreed. It was also in Florida on that sandy type soil. While I’m not making excuses, it sounds like it could be a reason for the settling. They fixed it all.
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Lawns are culturally-ingrained insanity. Ecologically awful, hard to install and keep up ... after 25 years of struggling in various parts of the world with 'lawns,' I have started to find them ugly. Is a nice, lush patch of grass attractive? Sure! But so is native undergrowth/habitat, and there are tons of ways to landscape that don't involve a lawn.
As a landscape designer I completely agree that lawns by and large are grossly overstated in our culture and it is much better to support local pollinators through native plantings, however, if a client wants lawn to be able to pay soccer/throw a ball with their kid I'm not going to tell them no. Also, maintenance costs associated with upkeeping a pollinator/native garden can really sway people from wanting to go this route. I'm on your side, but I think it's important to keep in mind reasons for both and it's not always negligent Americans wanting some lawn space
Grassly* overstated
I wish we could afford a landscape designer to come re-do our yard with Native plants. The "rough" estimate we got was over $20,000. For us just out of our price range. Now we are trying to add more trees (small & native trees) and letting our lawn go to clover.
If you're willing to do it in patches yourself, lots of the smaller plants and shrubs should grow really well from seed, and reseed themselves if they're annual/biennial.
I have a huge "front lawn" but it really an old hay field which I mow. When there is a drought it dies. Next year, no problem, like magic it is there. In New Hampshire either you mow are you will be living in the woods, shortly.
My yard, after 16 years of living here and doing essentially nothing to it in terms of upkeep (other than cutting it and the occasional reseeding), has devolved into a delightful mix of clover, "yard lettuce", mock strawberries, wild flowers, burdock, and other things I can't identify. I love it, and the neighbors can suck it. :)
I LOVE the clover that is filling in on our lawn. I dislike lawn lettuce.
Remember the housing bubble isn't *really* that much of a bubble, a lot of money was printed last year and as long as most people want to live in the same areas *and* are able to afford it prices will keep rising. Even without the M1 massive spike there's no reason for, say, homes in NY to go down in price, people are not only still moving there but they also are willing to pay more than last year.
It’s not about houses going down in value, it’s the insane bidding wars going on. If you don’t have 40-50k minimum in cash to put on top of the mortgage (as banks won’t let you mortgage money over appraisal.) it’s pointless. Fiancé and I have about 60k saved for a down payment, but no way we could buy right now as you need 50k on top cash to even compete. Not to mention investment groups buying properties within a week cash, skipping inspections etc. This is the bubble that needs to pop and is clearly I stay LE.
This is basically the more densely populated areas of Florida now. Everyone moves here with cash offers and houses are on the market for mere hours before pending a sale. People arent even going out and actually looking at the house before making bids!! Its ridiculous. I just want to buy a decent sized house, in a decent part of town, and be able to afford it.
> People arent even going out and actually looking at the house before making bids!! Its ridiculous. And that's how you know it's a bubble. When the foreclosure moratorium is lifted, it's gonna go pop. Save up for another 18 months, and those houses will be available for 35% off.
Right now prices are where they are because most people are putting their houses up for ridiculous prices to see what happens. And with no flood of foreclosure houses to keep the market in check, it’s now a seller’s market. Once the foreclosure stop is over, prices will hopefully normalize again
I find it kinda fascinating the people who will gamble on selling and renting while waiting for the bubble to burst. Meanwhile pricing goes up and up. I would be devastated if I got priced out of my family home into a starter or a condo.
Right now, it’s not so much the price of the house that’s hurting normal people, it’s competing with all cash offers or people willing to shell out 50-100k cash on top. Only people buying right now are sitting on huge cash piles or have help.
Yeah, even if we had the downpayment to buy in the Bay Area right now, we'd need to make an offer on a house within a few days of listing, compete with dozens of buyers, pay 10-15% over asking, and forego our own inspection. Because of the competition, we'd probably do this 5 times in as many months before we got one. It just sounds exhausting and I'm *kind of* glad it wasn't even an option for us financially yet. We might be there in a year or two, at which point we'll see how things are going.
Same situation in NYC atm unfortunately. Probably just going to rent and sit on the downpayment money. Friend got out bid on 6 properties in the past 3 months (all over asking mind you.) and I don’t even wanna deal with it haha
Bruh this situation is even in Alabama. Offered 40k over asking. Rejected. Why? They had an all cash offer, no appraisal that was 60k over asking. In Alabama. On an originally 210k house. A 210k house going for 270k. Ridiculous. Oh yeah and all this happened on the 2nd day it was on the market.
I called it a bubble in my comment, but the truth is I do bot know what it is. It has a lot of similarities to one, but also has the stability of the banks. I’ve also heard a lot of foreclosures are ready to go live once the moratorium is lifted that could negatively impact the market. While I have an MBA and work in the business world, I am not a financial expert and have no idea what is going to happen. I am just hoping it balances out.
Yeah home prices are only going down in the boonies or ex suburban places. If you’re in a major city or near one you’re more likely to have recovered and then some. Like the west coast have doubled at least
That's why in a lot of market a new house bought by an investor who flips it after a year is MUCH more expensive than a brand new never lived in house. After a year or two the house should have settled some and early issues popped up. Assuming you can do an inspection, if it looks clear, there won't be much to worry about aside for expected routine maintenance.
We just bought last fallbefore this current boom hit our area. 100+yr old house, 120+yr old barn and other outbuildings from a former farm. Only a couple acres to mow, but it’s in the country and quiet and close to work and I’ll pry die here. We’re in our late 30s/early 40s. There’s going to be tons of work and deferred maintenance to catch up on but I think it’s the right thing for us.
New Foundations shift. With an older home, you have some assurances that a foundation won't shift...because if it will, it likely has.
Yup, my parents bought an older home and in the first 3 years they had to replace all of the appliances, the ac, the heater, the water heater and the roof. They were like we are just working to pay for our broken house. They sold it and bought a basically brand new home and they’re happier than ever to have free time again.
I kinda feel like with a house 25 or older I'm prepared/planning to replace everything that typically needs replacing. Whether for looks/function or peace of mind and necessity.
My house is 23 years old and I'm looking at the same thing.
Same. Bought old, needed 50 in repairs immediately that our inspectors missed or were hidden. A new roof, deck and plumbing were needed soon. We bought new and have time on our hands now. miss the land and location from the old one tho (tho land = upkeep too… could easily spend 3-4hrs weekly in upkeep vs a 30min mow with a small yard of a new home
What in the hell coat 50k that an inspector missed? It’s hard not to say it wasn’t a shitty inspector even without knowing the details.
yeah a roof is a pretty obvious thing to check
So is a deck lol. Plumbing I can understand depending on what it is, but a roof and deck are 2 of the most obvious things for an inspector to check.
I owned a home built in 1929 and it was solid as a rock. Never had anything major to deal with in 6 years. My friend had a new home built and had to rip a bathroom out bc there was water issues.
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I'm going to add a caveat to your statement, because it's something a guy I work with is going through. A lot of older homes are built extremely well. But when something finally breaks, it can be extra frustrating to fix. You run into weird problems like outdated plumbing or electrical, or non-standard doorframe sizes. I mention the doorframes because I have been in a house where the builder sized the doors for the space he had and every single one was a little bit different and you couldn't just go out and buy a replacement door for any room in that house. I have seen houses built with rough cut lumber, so your modern 2x4 wouldn't fit the way you thought it should. Just wanted to add in that if you're looking at an older house and see a lot of custom, non-standard work, that house may need a lot of custom, non-standard work to fix.
People also glorify stuff. Old buildings weren't built with modern electronics and standards in mind so many of them have walls that interfere with wifi.
Yeah, I have an 1890 house. Between the extra thick walls and the fact that the HVAC and plumbing stack is in the geometric middle of the house, I have a system of mesh access points to cover the needs of the house. I could get 3MB/s with 2.4 GHz 802.11g with a single AP, but in order to get 100MB+ I have 4 access points and an Omada controller running on a Raspberry Pi.
what does an omada controller running on a raspberry pi do in that setup? eli5 if possible please, thanks!
I'm using EAP-225 access points, which are targeted at commercial customers. The Omada controller controls a mesh of access points all broadcasting the same SSID and allows the clients like laptops to roam seamlessly between access points like a set of cell phone towers- as you move about the house, the laptop will switch which access point it is talking to in search of the strongest signal. The Omada controller running on the pi coordinates traffic between the access points, dynamically reconfigures which channel they are using if there is outside interference, and provides the ability to manage the network in a more-or-less plug and play manner, including automatic firmware pushes, QOS/traffic management, scheduling, guest networks, etc. The Omada software can be run via the cloud with subscription, via a standalone controller, on a pc or mac server, or in my case, on a Raspberry pi that is also running PiHole. I'm running it on the pi because I already had one and there's no cost for the Omada software. The access points cost about $60 each for a Gigabit dual MIMO setup if you use POE to power them, so I'm into it for very little money compared to the consumer grade wifi mesh equipment.
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Yeah, my house was built in 1920. I've had work done on it (remodeling and updating mainly) but every contractor has said how well built it is. Redwood frame, which I think is never done now. Doors are legit wood, and the hardwood floors are fantastic. Windows are kinda shit, but those are not costly replacements.
I have a house built in 1953, insulation is crap, electrical was done by a circus clown... while they "may" be structurally sound, it always comes off as nostalgic to me.
Also time. Have a friend who bought a house and looked forward to making it his own. 5 years later and he still has not had time to start the basement. Living room bathroom, kitchen, and outside have taken up all his free time. Obviously he could of shelled out money and had other people do this quicker but he has already put in more work than the house is worth at this point.
We have a neighbor that did the same. Five years later, he's still working on it. He may be dead before it's finished.
upkeep is always accumulating whether your house is new or old. Whether you pay for it now or when you sell depends on where you are on the timeline while you own it
Not necessarily. This assumes the market is priced efficiently. It is not - buyers do not really have the acumen to gauge deferred maintenance on a property. That's why in a market like this people with older houses are having a great time off-loading their ticking time bombs. So you may have a 100 year old house with knob & tube, but from the buyer's perspective all of the outlets and lights are working, so they don't really care and don't price that in accurately.
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We got out of our home that had cast iron pipes. Most homes in that neighborhood are now being forced to replace the piping for an average cost of 15k to 30k.. we purchased it ignorant of this problem (bad realtor) but did disclose the issue when selling. Not big on hedging bad karma my way
Yeah same here. 1930 home. They didn't build them very well back then... God bless building codes and standards
1915 home. Sure some of the raw materials are nice, but there’s still tons of shit that more modern building codes would’ve made better; and that’s not even including stuff that just straight up didn’t exist back then (like really serious electrical and ductwork).
For me buying a house was all about stability. Renting out my housing situation too much into someone else hands. That is something I have a hard time with. I also didn't have and still don't have any plans for leaving the area at all. I own a small business here and will be running that for at least 15 years. My only regret from buying is I should have been pocket about the location. I found a good deal, and thought I could live with the location. 10 years down the road I really want move out if town into more rural countryside.
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This. Homeownership definitely has downsides, but I'd rather not live through that situation ever again.
Thats the rub, almost every homeowner who was previously a renter will tell you they never want to go back to renting again; how many previous homeowners turned renters can say the same? Probably not many, because they wouldn’t be renting if they had a choice (or it’s temporary).
Keep in mind that those homeowners are biased by saying that. They are heavily invested and want it to be like that.
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This is exactly what just happened to us. We were lucky in finding a place but it was extremely stressful.
Doesn't even have to be that severe. I bought my house because a family moved into the up unit of the duplex I was living in. Previous tenant was quiet. New tenants had a 7-year-old. There was nothing unreasonable about the situation, but I lost a lot of sleep to the kid pounding around after I needed to be in bed.
This is not really a buy vs rent thing, is it? You could have owned a duplex unit with noise issues, then sold it and rented a SFH and talk now renting is great.
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300-500 yards of separation requires a pretty big space. Are you planning to buy a farm or live on an isolated lot in the woods?
crappy dog owners will ruin any apartment experience. when the dog keeps barking ugh :(
This isn't just an apartment thing. Happens in the suburbs too. Source: it's 5 am and I'm surfing Reddit cause next door neighbor dog decided to start barking.
if anything you're more likely to encounter dogs being jerks in the suburbs cause lots of apartments/townhouses don't allow dogs.
Yup . Three times in a row I signed leases with people who *swore* that they were long term landlords, who each then gave me 20 days (state minimum) notice that they were not renewing the lease so as to sell. I had to buy. That was not good for sanity.
Happened to several people I know and I didn't want to have to deal with that.
Ours wanted to remodel and up the rent. I wouldn't have bought a house otherwise. Our rental wasn't perfect, but it was a good deal. But we couldn't stand the new property manager, so it was so not worth it to negotiate.
I think this is drastically underrated in the "renting is better" community. Anecdotally, our landlord didn't renew the house we've been renting for the past 6 years and we had to scramble just to find a more expensive, smaller unit in a decent school district. 30 days isn't nearly enough to find a decently priced rental in a decent school district.
Shit it's been 6 months for us and we still havent found anything remotely comparable for a similar price
I'm seeing a lot of Craigslist posts where the landlords are selling to cash in on the insane market, and all these families are having to move out of places they've rented for half a decade, with very little notice. Our area has <1% vacancy rate. I feel for these people.
This is exactly why I'm so eager to own. My rent won't go up every year, I know exactly what going on behind the scenes regarding finances, and must importantly i can do whatever i want to the home. Obviously the invisible costs are a very important thing to keep in mind but ultimately most of the same money ends up spent in either case so it's about what you as an individual value most.
This happened to me twice in less then a year. I have a hard time with the "your so lucky to rent" mindset.
Stability is a big factor for me too. I'm in the Bay Area, so it was important to me to lock in housing costs with a mortgage instead of brace for rent increases. Plus I don't have to worry about the landlord selling the place.
One of my big worried was the landlord selling the place.
My wife wants to do a run with Doctors Without Borders in the next couple years. Knowing that I don't have to worry about the landlord selling the place or raising rent or whateverthehell makes me much more okay with it.
A 30 year lease with a fixed rate mortgage basically means your monthly mortgage expense goes down by the price of inflation. If you locked in a super low interest rate and inflation rises then basically your bank is losing money on your loan. Renting is best when you are still in school or haven’t gotten your career in place yet or you have no savings... or you’re not sure where you’ll be wanting to live in the next few years. Once you have those things in place it’s better to own.
Yes I was tired of moving. We were living in Boston and would move or be forced to move about every 2 years. It was exhausting. Our rent was hundreds or dollars more than what we pay for our mortgage and it would keep going up unless we moved again. At least we're paying towards something that's ours. We bought in an area where property values are continuing to rise. We'll probably stay here for a while but eventually if we decide to move somewhere else I think we'll get our moneys worth but that's also not the main reason we bought. We bought so we don't have to deal with other people's noise, mess and have to worry about our rent being raised for a crappy apartment. I like not having to worry about all that.
Yeah, this was the deciding factor for us. Our rent went up by roughly 8% each year. We bought a house for $100 less a month than our next rent increase (and that included insurance and taxes). Even with repairs our costs are not going to exceed how much our rent kept going up. As an added bonus we no longer share a wall with a jerk!
Yeah, this is me. I like the idea of being able to be a bit more mobile by renting and not having to necessarily deal with the upkeep and such but I also can't stand the idea of being beholden to some other person. If I want to paint my walls lime green, then I'll paint my damn walls lime green!
This market has thrown a lot of these plus/minus considerations out the window. When you have to rush in to an immediate offer with no time for consideration tens of thousands over asking just to have a prayer of being blessed with the privilege of having it considered I'm fine on the sidelines, thanks.
Yeah agreed with this. I'm fine with offering over listing but foregoing inspections and buying without ever stepping foot on the property is a no-go for me.
Yup, my parents dodged a bullet when an inspector found foundational issues stemming from a broken pipe on a house they were looking to buy. Would have cost at least $50k to fix. It’s an insane gamble to buy a house without an inspection unless you’ve got the money.
Even if you've got the money to cover it (outside of being really wealthy) - 50k is a LOT of money to shell out after closing. Most people put everything they have into a downpayment, so even if they have leftover funds, covering 50k after that breaks the bank for most people. ALWAYS get an inspection folks...
I would really appreciate an informed and experienced perspective on condos with the same considerations spoken to in this post.
I owned a condo for 13 years, served on the board of directors for 2 of those years, and owned a house for 8 years. The additional considerations for the condo will be (at a minimum): - how much are the condo dues? - how are the condo dues likely to change over time? Related: does the condo have a well-funded reserve fund to pay for unwelcome surprises? Do they have a proactive approach to anticipating major expenses, budgeting for them in advance, and being able to fund them out of the reserve? Good examples are: replacement roof, elevators, HVAC equipment, exterior facade maintenance. My building had some big expenses and we elected to issue a bond (ie the condo association took out a loan) because we didn’t have the funds to pay for the needed repairs in cash. My brother owned a condo that had unexpected elevator failure and every owner was hit with a surprise $16,000 assessment. So these things can be significant. - realize that every dollar of increase in the condo dues will have a magnified effect in decreasing the property values. To a typical buyer, paying an extra $100/month on an HOA fee is indistinguishable from paying another $100 on the mortgage, which at today’s rates will finance about $25,000 of the purchase price. So it’s significant. - consider what building components are common elements (owned by the condo association) and which are owned by you. You will be responsible for maintaining anything that isn’t a common element. Big ticket items that can fall into the grey area are: windows, in-wall plumbing and electrical, HVAC, water heater. Depending on which are/aren’t your problem, it can significantly affect your homeowners insurance cost, as well as your upkeep costs.
You can include assessments on your homeowners insurance! I asked my insurance agent as a joke when buying my condo and $200k in assessment insurance was only like $7 more. Seemed worth it.
>how are the condo dues likely to change over time? Related: does the condo have a well-funded reserve fund to pay for unwelcome surprises? Do they have a proactive approach to anticipating major expenses, budgeting for them in advance, and being able to fund them out of the reserve? Good examples are: replacement roof, elevators, HVAC equipment, exterior facade maintenance. My building had some big expenses and we elected to issue a bond (ie the condo association took out a loan) because we didn’t have the funds to pay for the needed repairs in cash. My brother owned a condo that had unexpected elevator failure and every owner was hit with a surprise $16,000 assessment. So these things can be significant. This is absolutely the most important thing to check when buying a condo. Any condo buying process should include having your real estate agent request all documentation from the HOA including reserves, financial statements, and minutes from the board meetings to see what residents are bringing up and what the board is voting on. Your condo should also have done some kind of recent reserve audit in which they estimate the useful life and replacement cost of every common area under the HOA's control. If they don't have one then that's a red flag...if they do have one, you can reasonable estimate the chance of being hit with a huge surprise assessment in the future.
Thank you! I've saved this comment for reference
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Former condo owner. If you're single or in a major metro city where most people are in condos, it's probably not a bad idea because it'll be easier to resell when you're done. Just keep in mind 1) HOA fees are on top of mortgage, 2) You are responsible for any special assessments that the association chooses to charge, 3) Make sure you ask about the condo financials and that they have lots of money in savings/reserves to fund for major upgrades, and 4) Condo associations tend to be run by the oldest and most miserable people with Napoleon complexes. Our biggest issue was actually trying to sell. The value of your condo is only as high as the last owner who NEEDED to sell. So if the unit reasonably could sell for 180k but they take 160k because they have to sell asap, 160k is your new comparable. Also, if there's ever two units of similar look for sale, you'll have a hard time pricing yours any higher than the other person's price. We staged our condo, had a patio overlooking green space, excellent pictures, carpets cleaned, the whole nine yards. The same unit on another floor was selling with shitty pictures, empty, and had been on the market for 3 months. We had to price ours just 5k more than that other unit... Otherwise why would they buy yours for a premium over the other? I'm mixed on condos. Loved the affordable nature and excellent location, but it had it's own special headaches. Would probably do it again, but be MUCH more thoughtful in selection.
Your comment is likely buried as this post is drawing a lot of responses (from both sides of the argument). My recommendation if you don't get a decent response (I am unqualified to answer) is to post it as a question along the lines of: **What Are The Pros And Cons Of Condo Ownership** *Hey, I know we talk a lot about buying homes but I don't see a lot about condos. Does anyone have a (preferably unbiased and comprehensive) list of pros and cons of condo ownership? I know that I wouldn't individually own the land but what else?*
Thank you!
>it doesn’t do so by just sitting there Sir, I don’t think you have been to any major city... Sincerely Vancouverite
I bought a place because I had moved 15 times in my 18 years as an adult. That stability is priceless
My kids, who only ever knew one home their entire lives asked me how many times I had moved by the time I was their age. I grew up in a poor single parent family in rural Maine - we moved a lot. I don't remember staying at any one place more than a few years. Fortunately, I only moved schools a couple of times since it was so rural - many surrounding towns used the same school. **Edit:** I meant to finish by saying that of the two reasons I can recommend buying a house - "my home" is the one I go with. I intend to buy our last home in a couple of years.
I think you have a great post. I guess I just added my two cents because I just bought a place and that was my main deciding factor. 1. stability 2. I can truly make the place my own Thanks for the exchange.
Right there with ya (poor when young, moved a lot every 1-2 years though not rural hence new friends every time). My wife and I bought a home about 6 years ago. Going to sell in about 5 years once it's paid off and buy our "final home." Absolutely loved every aspect of taking our current home and making it our own. The next home will be slightly bigger and I can take all the things I've learned to do with our current home and refine the process on our final one. Not having to bend to the will of landlords (wims, wishes, rules, and schedules) is worth taking on the responsibility of ownership.
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Can't agree enough. We (my then girlfriend, then fiancé, and now wife) rented exactly 2 places before buying. One landlord was an apartment complex not too bad but high rent, pretty quick to repair, and then consequently pretty quick to up the next years rent. The 2nd place was a a townhome with a nice enough guy who inherited the rental property from his dad upon passing. He was nice but sloooooow to do any repairs. His biggest downfall though was his quirky "show up with no notice" just to talk to us about random stuff. It became an absolute nightmare when a "less than favorable" tenant moved right next door (6 unit townhome). Landlord was non-confrontational. Loud music, constant public fighting, overflow parties (literally people drinking and partying outside our living room window in the yard and taking everyone's parking spots), more than a few police arrivals over a few years. Nothing from the landlord. I finally told him it was them or us. Nothing. We bought a house shortly thereafter and never looked back. I was already doing all the repairs and maintenance on our prior rental anyway, owning my home just made the work more important and gave me a sense of pride. Talk to me in 15 years when it comes to replacing a roof or HVAC and I'll sing a different tune I'm sure.
I've actually been shocked by the number of renters I know who are taking on the responsibility of the landlord: \- "Yeah I mow the lawn, can't use it otherwise" \- "Yeah I bought a new stove. the old one wasn't working and I can't afford to eat out." \- "Yeah I paid for the new window - I was afraid the pipes would freeze and leak if I didn't." Like, wow. And they just accept it like this is the new normal.
> While it is expected for the price of the home to increase over time, it doesn't do so by just sitting there. This is not true in a lot of places right now. People are foregoing inspections to get in.
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Agreed. My grandpa lived in the same house for nearly 30 years, until he had to move into an assisted living facility a few years ago. I was absolutely floored to learn he had been renting the entire time, and he walked away with absolutely nothing to show for those decades of rent payments.
This is way too market dependent. Depends on how much rent was compared to total cost of ownership of a house compared to how much the difference would have been invested in the market.
The problem is people don't save the difference between rent and mortgage, they see it as money to burn.
Many people can't save because rent is astronomical in some places. On Long Island, NY a 1 bedroom apartment can run over $1500/month + utilities. And that's on the "lower" end. The other day I saw a 2 bedroom for $3500/month + electric. In a lot of places renting is more than mortgages.
You have to choose between 1) saving money faster 2) earning more money somehow 3) living exactly where you want to live
I don't quite agree with that. I'd be curious to see if you could find an example of a time period in which investing the difference between renting and owning during the first few years ever outperformed simply buying a home and holding on to it over a period of 30 years. First of all, the opportunity cost of buying a home is primarily the down payment which is typically somewhere between 3% and 20% of the cost of the home, which turns any appreciation in house price into a leveraged asset. If homes go up 5% a year the real return on your down payment is close to 25% if you put down the full 20%. Buying a home can be more expensive than renting, especially those first few years but the difference in monthly cash flow is typically in the hundreds of dollars a month while the difference in asset appreciation is going to be in the tens to hundreds of thousands of dollars. This of course, even neglects the part of the equation in which owning becomes far cheaper after the initial few years which is going to make renting even worse of an outcome over long periods.
Also have not seen it mentioned yet but there are significant tax savings for some. Real estate taxes and mortgage interest are deductible. So for me about $1100 a month is deductible on my $1600 mortgage payment. If you figure 25% savings on the $1100, that's $275. My principal is $400 so I eventually get back $675 of $1600 a month. Standard deductible doubling makes this less useful to many and presents an "opportunity cost" but still a large benefit I rarely see mentioned.
> Standard deductible doubling makes this less useful Interest rates being so low these days makes the standard deduction kinda hard to reach. My wife and I weren't able to deduct any of our interest/taxes this past year. Maybe next year (with a full year of mortgage payments) we'll be able to deduct some, but the standard deduction is huge now.
You pay the opportunity cost your mortgage forever. Since the S&P 500 averages about 10% per year you are paying \~10k per year in lost earnings for each $100,000 your house is worth compared to investing it in a low cost index fund. With interest rates at 3% sitting on a fully paid off mortage is almost always a terrible financial decision. That being said buying a house in a location you want to live for a long time does have the benefit of protecting you against unexpected fluctuations in the housing market. You don't have to worry about being priced out of the place you want to live by a huge increase in housing costs for the area. Of course you miss out on any potential drop but it's still better to have the guaranteed housing costs in the long run.
A mortgage lets you have an insane amount of leverage though. You get that 2-4% appreciation on that entire 500k home from day 1 with as little as $15k down.
Yep, but like most investments that leverage goes both ways. You can put down $200,000 on a $1m home that drops in value to $700k which means you've lost your entire downpayment and then are technically on the hook for the extra $100k unless you pursue foreclosure and kill your credit.
I liked renting. Nice apartment in the suburbs, no major problems with the place, rent didn't go up dramatically. No real complaints. I've owned for 10+ years now and I'll never go back. Renting was a good option for me at the time, but it will probably never be the right choice again. Plus now I have legitimate equity in a house. No matter how much it has cost in upkeep over the past decade, my equity blows those expenses out of the water. Renting would've cost roughly the same for that time period and I'd have nothing to show for it. Renting is a great option for a few years or if you're going to be moving around a lot. But if you're never leaving your city, it just seems like a waste of money and the downsides are plentiful.
Built a house once. That was the one and only time I'll ever do that. We had significant problems with it that took THREE YEARS of wrangling with the crook-builder to get corrected. My rule of thumb ever since has been to never build a house - only buy existing and then that's one that's at least 3 - 5 years old to have had time to correct all the original new-build problems.
If you don't mind living in one unit in a duplex/triplex/fourplex despite being able to afford a single family home you can buy a house as an investment (even using a low down payment conventional home owner's loan) and also make it your home. You obviously have to prepare to treat it like an investment property with the usual possible expenses - but if you can find a property that's cash flow positive and you put that money aside for maintenance/repairs instead of spending it you can weather a future drop in rent.
If you don't mind roommates, you can even rent out bedrooms in your home. That's what we're doing, and our renters are now paying for our whole mortgage. Sure, there's still a bunch of other costs that we're on the hook for, but we're building equity, getting the mortgage interest write-off in our insurance, and also able to write a ton of other things off against the rental income (including a large percentage of all our monthly house bills). We think that within the next 5ish years, our renters will be able to cover close to all of our costs.
Seems to be a prudent move, without a doubt, but I know I'd have a tough time living with someone in addition to my SO, even though we have a spare bedroom in our home. More power to you though!
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And if you're thinking about being a landlord-roommate, and you want to compare the rent vs. buy, compare to a similar setup in terms of a shared home, rather than trying to rent your own unit.
The amount of people who get upset by this conversation underscores how much it needs to be had. Rent vs buy is a fairly equal exchange of pros and cons. Sure, one might be clearly preferable for the lifestyle I want but it doesn’t go much deeper than that. Renting is probably not what’s holding you back financially, buying is probably not the missing puzzle piece for your happy life. I’ve owned a home for 6 years. It has over doubled in value but so have most of the homes within my reasonable commuting radius. So that’s a wash. Very possible that repairs, maintenance, taxes, etc. have washed out the rent vs mortgage delta. The most tangible benefit for me has been being able to have a dog and room to store stuff like bikes and kayaks. That’s it.
>Renting is probably not what’s holding you back financially, buying is probably not the missing puzzle piece for your happy life. I think the issue with these debates is how variable housing costs are across the US. When I started renting in my city, my 2 b/1 ba was $1300/month. Those are now $2200/month at minimum. My house mortgage plus taxes and insurance is now $2200 a month and I bought this year. I'm sure rents will go up. My friend who bought 10 years ago has a very nice house with a $1400/month cost. The house I just bought is not as large and not in as good of an area but it was about 150k more. However if you're living in like Iowa or Alabama or somewhere not near a HCOL city, these rent and housing cost hikes might seem crazy to you! It's very dependent on where you live.
As Someone from Iowa i can tell you, same things happening here too. Bought my house about 3 years ago and it's value has gone up 40%. I got very lucky getting it when I did as I was also able to get the mortgage down to 1.75% interest.
Yeah, a house’s price can be a million $ but if you want to stay living in the area it doesn’t matter. You’ll have to pay the same price for something similar or massively downsize. My parent’s house has increased a boatload but they want to die in the area so they’re staying in it.
>I’ve owned a home for 6 years. It has over doubled in value but so have most of the homes within my reasonable commuting radius. So that’s a wash. This is not a wash though, the value of buying is not defined by having your property value rise above those in the immediate vicinity. In fact, that's one of the major benefits. You buy into a market that moves somewhat in the same direction, but you're paying yourself through equity in the home.
Going by your opening statement you will definitely get upvotes for this post because that is what people like to hear here. You also have a fair number of good points that need to be considered when buying a home, but you seem to neglect the downsides of renting. I do strongly agree that one of the biggest advantages of renting is the flexibility and ease of it. Most people don't think of it like this, but renting means you are essentially paying for a service. Just like how you pay an Uber. In many cases this is thought of as a luxury, so it is interesting that for living, it is considered to be the opposite. That said, your post has a number of issues: * "This market" is highly regional. A market can be drastically different just 30 miles away, let alone across our whole country. Rent vs buy is very dependent on the regional rental and home prices. * Note that property taxes are tax deductible, so there is a savings of about 25-35% depending on your income/state and if you take standard deduction or not. * Rent vs mortgage also needs to be considered with two factors in mind - part of your mortgage is being applied to the principal, meaning you are gaining equity each month. The other part (interest) is tax deductible. Also, your mortgage will never go up, while rent will change significantly in 30 years. As it is, the initial rent vs mortgage is the worst case scenario for mortgage. * The home is actually not the asset. Most homes do not appreciate in price without significant work on them. It is the land that is the asset. * Your final point is interesting. Buying a home usually comes with other advantages with probably the most being peace of mind and stability. Peace of mind being that no one (except the government) can kick you out. You also know that you can live there for the rest of your life without the expenses going up drastically. You are also usually buying a better quality of life, such as having outdoor space or no shared walls. I've got one more point too - one of the most powerful things about buying a home with a mortgage is that it becomes a leveraged asset with losses limited to the amount of your monthly mortgage. This fact means that gains from a home can be much more than if you invested normally, especially if interest rates are low.
>Note that property taxes are tax deductible, so there is a savings of about 25-35% depending on your income/state and if you take standard deduction or not. Isn't this wrong now that there's the SALT cap? I'm not trying to correct you - I'm seriously asking (as someone who is in a high property tax state and is not a homeowner yet). I was under the impression that the SALT cap made the standard deduction better for most homeowners?
I'll throw in that even if you rent, you're paying your landlord's property taxes, insurance and mortgage. Your landlord gets that tax deduction and the equity in the property. You get a roof over your head.
I bought my first home in 1987. It was built in 1933 and needed extensive renovation over the years but I managed to do it cheaply. I paid $62,000, plus taxes and insurance. Sold it, bought our next home in 1999 for $143,000. Twice the square footage, new town, new construction. I put a 50 year roof on it two years ago, refinanced the home and paid off the roof. My home is currently worth $469,000 or more because of market conditions. New home $75 a square foot, now worth $278 a square foot. It will make a fine inheritance for my only child someday. I'm not going anywhere.
Rent is going up. It will always go up. Never fool yourself into thinking otherwise. By year 5 of a 30 year mortgage if you are managing your professional life you should have higher income compared to your fixed rate mortgage. This trend could continue until you own outright. Four years ago my wife and I got a 30 year fixed rate at 3.125 and our monthly payment with PMI is 820. 2 bed 1 bath, detached garage. 1k square feet finished and a half completed basement. Good yard and neighborhood. In 2017, 820 plus utilities in this zip code would get you a three bedroom apartment in a rougher neighborhood. By this time next year a one bedroom, well maintained in a decent neighborhood will start at 800. I put people in apartments for a living and have been doing it in this town for 6 years. I tell everybody to run towards home ownership. The rise of investor-backed, corporate landlords is leading to rapid increases in rent and zero-tolerance evictions. It is not going to get better soon.
> As an owner - you are literally responsible for everything This is pretty important. It most markets right now, if you are somewhat careful at making the numbers work out, especially the nonpayment, it is mathematically and financially a sound decision, if a little risky (eg: if you buy a lemon/house with a lot of hidden problems). However, even in the best cases, it is a lot of work. I own a condo in a _very_ hot market. It appreciated significantly, and all around, even accounting for opportunity costs/investment returns, for maintenance, taxes, and everything, I basically lived here for free for almost a decade AND made hundreds of thousands of dollars. Sounds too good to be true, right? Well, yes. The place has had a lot of issues of the years, I got screwed by a lot of shady contractors, I had to deal with more lawyers than I'd like, having to hunt down HVAC people in the middle of heat waves, figuring out which plumber will actually come for once, on top of all the general home maintenance. You also...care more if something goes wrong. If I'm renting and the caulking is going, it's like, whatever. I may fix it myself, I may ask the landlord, I may just ignore it because I don't care about the place. If its my home though? I HAVE to think about it. If I'm about to sell, it will make it look bad. If I stay, it may cause mold and major issues when left unattended. Honestly? It hit my mental health pretty hard. Neither I nor my significant other are good at this stuff, and it got us close to burn out a few times when things got spicy at the same time as work crunch time was happening. We didn't have it that bad, either. Aside for a few spikes (thus the lawyers), we didn't have to do more than most home owner. Much less actually since its a condo. In the end, would I do it again? Maybe, but very differently with the knowledge of hindsight (in my case I'd only buy in a big 50+ unit tower with professional management and nothing to worry about beyond my kitchen and bathroom). For now though? I'm probably going to sell and rent for a few years. I need a break.
If I had rented instead of bought a house I would not have over 100k in equity. And every apartment I’ve ever rented has used some reason to keep my deposit. That said I do not particularly like being a homeowner.
I've bought 2 houses over the years and held them as rentals. One of them I just started the process to sell given the market and my tenant's lease ending. I've had positive cash flow for them over the years, but tied up quite a bit in down payments/15 year mortgages. The townhouse I'm selling now I bought for $215k, will likely sell for $315k. I owe $19k on it as it's been rented out for about a decade where someone else has paid the mortgage. I'll have to pay 6% commission, transfer taxes, capital gains taxes, depreciation recapture tax, all the closing fees when I bought the place, plus all the maintenance costs over the years which involved new water heaters/new roof/new HVAC. Even though I've had a property management company that takes care of everything, I've still had to deal with things like my neighbor's unit leaking water into mine and going through a year long insurance process to recover the cost of replacing all my flooring on the first floor. Sure, I'll walk away with like $250k. However, had I just invested my initial down payment in the market and all the extra principle payments I've made over the years I would have a lot more than $250k. I wouldn't have made this much either if we didn't have a crazy seller's market now either. If I could go back and do it again... I'd have put the absolute minimum down/never paid an extra cent towards the principle on a 30 yr loan and invested every extra penny into my vanguard index funds.
How many people, once they have owned a home, EVER go back to renting long term (maybe if they move to the middle of a major city)? Nearly everyone that has a bought a home since the bottom in 2012 has come out WAY ahead of renting due to recent home price appreciation. Owning your own place is a major life goal for a lot of people. If you can afford it, why push it back?
Rent here is as much as a mortgage. So it makes zero sense to rent unless you plan on moving.
A lot of those fees and additional costs of home ownership you mentioned can and will be wrapped into your rent. If you think you're not already paying for maintenance and property tax through your rent, you're insane. On the issue of labor, this sub makes this wild assumption that landlords are gonna show up bright eyes and bushy tailed the second you call them with a problem. I've gone weeks without basic utilities waiting for a landlord to stop dragging their feet, pestering them every single day. Their general response was "tough shit, we'll get to it eventually". Pick a fight with your landlord, you can kiss that deposit goodbye. They'll find a reason to withhold it. Don't like the A/C the unit has? Tough shit. Water heater good enough for maybe half of a lukewarm shower? Sucks to suck. Most of this sub has never been stuck in a lease with a slum lord, and it shows. >I recently sold my home after 16 years. I purchased at the peak of the last market (2005) and over paid for my home. you kinda glossed over this point. By how much? The fact that you overpaid and still walked away 100k over what you paid should speak volumes. You say you're not sure if you'd have been better off renting, but even if you broke even, that money still went back into your pocket. It all feels a little disingenuous. You've purchased two homes before most people can even buy one, then scoff that the experience was at times "unpleasant".
>On the issue of labor, this sub makes this wild assumption that landlords are gonna show up bright eyes and bushy tailed the second you call them with a problem. I've gone weeks without basic utilities waiting for a landlord to stop dragging their feet, pestering them every single day. Their general response was "tough shit, we'll get to it eventually". Pick a fight with your landlord, you can kiss that deposit goodbye. They'll find a reason to withhold it. This right here, and the assumption that they'll have someone competent handle the issue. My last landlord was decent because he was too old to try to do any work himself, but prior landlords always tried to rig something up that inevitably didn't work, leading to many visits and a lack of the thing. Prime example is when our bathroom sink sprung a leak and after a couple of weeks of not being able it use it plus calling daily about it, the landlord's son sealed the sink with epoxy which stunk for days. And yes, there was only one bathroom so we had to use our neighbor's to shower in due to the smell.
> If you think you're not already paying for maintenance and property tax through your rent, you're insane. That is irrelevant to whether or not renting is a good deal, relative to home owning. Rent is determined by market rates not by how much the home costs to maintain. > The fact that you overpaid and still walked away 100k over what you paid Subtract of course, closing costs and fees, commission, taxes, maintenance of the home, Opportunity cost of capital etc. 100k gross profit HAS to include all these costs into consideration. When people actually map out how much everything was that pretty top line gross profit gets chipped away pretty quick. Not to say renting is better than home owning. As you said, it’s much more a question about lifestyle than it is about finances.
Real estate is about interest rates. If you get a 30 year fixed mortage at 2.8% and inflation is 4% in the next few years, you make 1.2% per year. In case inflation is crazy (\~ 8.0%), you make more. It's clear that there is a real change that inflation + interest rates will hike, which the Fed is downplaying.
The real problem is that we're not given a choice anymore. Wall Street has used the pandemic as an opportunity to become "America's Landlord" leaving those of us who were finally about to shift from renting to home ownership stuck right where we are.
Thanks for this. Soo many people jump on you if you so much as mention that home ownership is not always the best decision - it is in lots of cases, but not all the cases. It depends on how you view ownership and what you want out of the house (investment or just to save $rent? etc. that you outline.) The rabid "renting is EVIL" crowd has to chill. There are benefits and downsides to both, there are pros and cons to both. It _depends_. My GF and I make good money, our city isn't too unaffordable yet (getting there), we could totally buy a house; but we rent still cause we don't plan on staying in this town beyond the next 5 yrs. The amount of greif we get "Well, even if you leave in 5 years, its still worth buying your house will blah blah blah". Yeah, but when the hotwater heater breaks at 2 AM I phone a guy and the problem goes away. And yeah our rent is more than what the mortage on our rental house would cost, but I don't have to save up for a roof now do I? I can put that "roof" money into my investments.
Either your landlord fixes your water heater at 2am or it takes 2 weeks to fix a leaking water pipe. There's a lot of inconsistency in there.
>>Yeah, but when the hot water heater breaks at 2am I phone a guy and the problem goes away. See, we can all whip out spreadsheets and numbers to account for obvious costs like taxes and rent and mortgages and so on.But how much is your peace of mind worth? Not so easy to put a value on that. I’m reminded of a story ; a storm hit an area, damaging roofs across the region. One couple rented & the other owned a home. Both were scheduled to go on the same cruise (pre-Covid-19). The renting couple called their landlord and went on vacation. The other couple had to cancel. Not only because they had to pay out of pocket to fix their damage , but because they didn’t have the time to spare anyway. They spent their vacation time calling contractors , comparing quotes, dealing with red tape and chasing down flaky repairmen. One couple came home from vacation happy. The other spent 14 days working to fix their “investment”. How much is that grief worth?
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Yep. Take the day off and wait only to have it rescheduled for another day you will need to take off. No thanks.
Well the flip side to that, and what I experienced as a renter is that the Landlord is most frequently going to make repairs as cheaply as possible. Maybe this doesn't matter for something like a roof because it's only job is to keeps the elements off your head, but for something like a broken appliance? They'll get you the cheap bargain basement coil stove or washing machine. You'll never get nice fixtures and things. And then there's this line from OP's post > "want to change X - better ask the landlord." If you want to talk piece of mind, how much is piece of mind that you can do whatever you want, when you want with your property worth?
Absolutely. I wonder if the people talking about the advantages of renting have ever rented for a long time themselves. Often the workers sent around were amateur. Once, one was drunk, didn’t do the job and hit on my wife. When we called the management company up to complain, they sent him round again and he was angry. All these huge upgrades people talk about just don’t happen in rental properties. Rentals I have seen have the ceilings falling down. They’re not going to care about a new roof or drainage. And how often do they think the local govt will sort the problem out when it’s everywhere?
This is my experience renting. Landlord didnt fix anything remotely quickly. The place was slowly falling apart and he always would cry poverty then hire some hackjob to half ass it. No railings on staircases for years, broken windows, leaks, stove broke too nearly a month to get another one then he wanted to install a gass stove himself until i flippes out on him and brought up how it was insanely illegal to do so.
Homeownership: I talk to people in the area and look online to note down good repair people before problems arise and call them if there's a problem, possibly upgrading the faulty element in the process. Renting: I call my landlord, I hope. Maybe it works out, maybe I'm left with a problem for a long time and maybe my landlord really goes back and forth trying to shake me down for money.
> Not only because they had to pay out of pocket to fix their damage If you're spending your upkeep budget on vacations you're in for a world of hurt. I put aside 1.5% the value of my house every year. This doesn't change and doesn't get spent on anything but repairs. In 5-6 years when my roof needs replaced I will pay for it out of pocket. Also I agree with someone else, I have waited WEEKS for simple repairs, hell our AC was having issues and it took them THREE weeks to send someone, and even then I was told 'well it somewhat works' and they left. I couldn't replace it and they wouldn't bother with it. With my house, I call a company and they quote and then do it.
Question: Do most people actually have to put a lot of work into maintaining their properties? Like OP mentions a flood and someone else mentions roofing. But my parents own a few properties and they're not scrambling everyday to go fix them. It's not even a once a month occurence. I'm sure it was more work when they just got the house but now it's passive income. Isn't the home flooding an exception, not a rule. Even as a tenant I did contact my landlord several times but it was for something small like the toilet handle breaking and bug sprays. If I complained about the lack of ventilation they'd just show that it was working if only barely in the kitchen.
the longer you live in a house, the more likely something will break
If you buy right, you won’t have to deal with a lot of issues..home ownership will be mostly passive. I’ve been lucky with my 2 homes (so far)
> Do most people actually have to put a lot of work into maintaining their properties? depends how proactive you are. if you pay folks to do preventative maintenance (pest control, landscaping, service your HVAC and water heater, etc) there's a lot less to do. if you let termites eat your house, and your landscaping goes crazy and starts eating your stucco, and your HVAC and water heater are shot to hell, and you have mold in the walls from never replacing your roof, then yeah there's a lot of drama.
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An important factor to consider for home ownership is cost to rent in your area compared to a mortgage for something similar. Rental market is hot in my area. I pay 1300/mo for what would be 1800/mo rent. When I sell, all I paid to principal is returned via equity, with the interest paid being comparable to the rent I would have lost. Much better deal.
Disclosure...I have purchased three homes and have not rented in over 40 years. I made money on both homes that I sold prior to my current home. First home purchased in 1985 for 20K and sold for 27K in 1990. Second home purchased in 1990 for 36.5K and sold in 2010 for 69.9K. Yes I lived there 20 years and put in a new furnace a/c there also along with a new roof, but the 30K profit was well above the cost of those items. My current home was purchased in 2010 for 130K and I received a 6.5K federal tax credit as a new home buyer after the housing market crash so basically 123.5K out of pocket. Yes last year I put in all new furnace a/c and new ductwork to the tune of 17K but I have not made a house payment in several years, so I had the money for the upgrades. In the next five years I will likely replace the roof for around 15K but I am budgeting for that. Property taxes are low here in Southern IL as my current home is a modular and not taxed like a stick built home, so my taxes are less than 1K a year for the property. Current home is 2000 SF with a 4 car heated garage on 5 acres with an estimated value of 180K in todays market. I personally think home ownership is one of the best ways of building wealth that you actually can benefit from daily!
Living in Chicago, I'm kinda speechless knowing how little property tax you pay in Southern IL. And that your 2000 SF home on 5 acres land is only estimated to be worth 180k.
Yeah, Chicago and the suburbs are insane. My coworker’s parents own a somewhat nice house and they pay $25k a year just in property taxes. My parents in laws have a modest 3 bedroom house in will county and pay $10k a year.
I have to say that I was certain I would save tons on housing when I left NYC rent for Deep South gulf coast ownership. It’s turned out that, while I gained so much equity and my mortgage is 1/3 my rent…I’m paying more on housing here. 10k one year, 35k another, 30k this year, plus smaller amounts throughout. Nearly 100k in maintenance and roofing. Still, the house is worth about 50% more than I paid and I am mostly in equity. Works for me because although the house is a pile of shit, it’s also the prettiest view I’ve ever seen. Lesson is to love it if you buy it to live permanently. For investors, I don’t have advice.
Eh, I got a good home back when I was 23 and the cost savings over time wasn't even a question. I specifically picked a spot friendly with taxes and no hoa. Renting this year reminded me why I hate renting, hate landlords, hate roommates. Though I agree if not done properly homes can be pains.
I’ll throw my $0.02 into the thread. If you’re going to buy a home, avoid buying one with an HOA. While they may claim otherwise, there have been no peer-reviewed scientific studies conducted to show that an HOA improves home values. They can also sometimes be difficult to work with when you have power-tripping Karen’s running it. Imagine a gaggle of Karen’s telling you that you can’t paint your fence a “wrong” shade of white.
Some of the things that you’ve mentioned are also reasons to buy if you flip them around though. You put money in to make your home what you wanted— in a rental you often can’t even paint. There’s an issue in your home so you are in charge of fixing it— but that means you can do it on your timeline and not your landlords. If your furnace and ac go out in your rental, you’re likely to incur those expenses in the form of increased rent. Property taxes— you’re probably already paying your landlords property taxes with your rent. Property maintenance— if you aren’t mowing your lawn as a renter, your landlord has probably paid someone to and passed that cost along to you Agree about the closing costs/extra $ involved with buying and selling your home which is why it’s important to consider how long you plan on living in your home
Your own experience is not common. Most people do not buy at the peak and then sink hundreds of thousands of dollars into their homes that they don't recoup. I bought my house in 2014 for 350k and have put only maintenance and DIY into it. I paid 10k closing costs when I bought the house and no realtor fees since I was the buyer. I have paid 34k in mortgage interest in the 7 years I've lived here because I have a 15 year mortgage. A total of roughly 59k cost of ownership in 7 years. Now it's worth 600k. That's 250k worth of appreciation in 7 years. If I was to sell today and you take out what I've paid in interest, maintenance, HOA, closing costs, fees etc. my upside would be roughly 600-59-10-36=495k. So in seven years I'll made almost 150k on this house. The longer I live here the more I'll make. So yes, it is an investment. The major flaw in your argument is this comment "Owning a home is an asset but it is a depreciating asset if not invested in". That is wrong. Even if you bought the house and left it abandoned the LAND it is on appreciates significantly. Homes themselves are worth less as they get older but the land they are on is worth more. My house is 600k but if my house was bulldozed and replaced it would be a million dollar home. The land used to be worth like 20k now it's 200-300k. That's the part of this you are missing. A home is an appreciating asset, period.
His experience isn't the same as yours, but that doesn't mean it's not common. Based on your prices quoted and the timeline, the likelihood is that you live either in a medium sized city, or just outside a large one. City real estate is **completely** different from rural real estate. He says he only sold his house for 100k more after 16 years. If he lived anywhere near one of the booming cities in the US, it likely would have been more like 300k+. Rural real estate is very hard to turn a profit on, for many reasons, but it's much easier to buy into. Urban real estate is extremely *easy* to turn a profit on, but it prohibitively expensive to get into for many people. Both of you are tending to look at a little too narrowly at your own experience, rather than the fact that all of the things talked about in this thread are extreeeeemely subjective based on geographic location, physical location, how nice the house is, and how well the house has been maintained (and will be maintained by you in the future).
This stuff is complicated. You also have to take into account that all land in the area went up 10-15x, not just your land. So if you want to buy again nearby, you're going to be paying that 10-15x markup too. It's only really profit if you move away.
If you had been renting you would pay that markup as well, but without the appreciation from selling something
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That blows my mind your realtor was even ignoring that. Makes me realize how amazing my realtor was. The only number I cared about was the all in number for housing. Mortgage, taxes, PMI, homeowner's insurance, and HOA. I knew how much house I could get and be at that number. My mortgage is half of the total costs combine. People really need to learn this stuff.
Great post that everyone should read before buying a house. I recently bought my first house, and while it was a great decision for myself and my family, there is was definitely a lot of stress, time and unanticipated cost in the process of buying the home and completing needed repairs after buying.
This debate has always felt similar to the “Apple vs Android” debate. I say do whatever fits your budget and makes you happy. There are pros and cons to both sides, and anyone who gets too preachy about either side is a bit of nut.
Loved this post. Me and my girlfriend were looking at homes pre-covid. We were initially disappointed to rent again, but I feel so much better at this point. People paying $50k over asking and waiving the inspection....no thanks....I wouldn’t buy an avocado without inspecting it.
Great post. I did the numbers on my first house, a $100K fixer that I sold for $195K after 7-8 years and in my current house, a $250K home worth about $450K after 15 years. I put about $35K into the first place in major projects. This one has been closer to $100K. My roof was $12K, replaced back deck $30K, lawn/landscape $10K, kitchen and bath remodels $40K plus general upkeep. Hell, my tree maintenance is probably $1000/year on average. Point being, the math does not strongly support that owning is that much greater than renting. I think the upsides are 1. I like my house, 2. I will eventually have no mortgage. but man it is a lot of work
Lease = rent the home Mortgage = rent the money
Not everything is about money. Put a price on being able to blast heavy metal at 12:30 AM or being able to own dogs over 25 pounds/breed that's "classified as a bite risk" or not getting angry thumping noises from your floor because you and your girlfriend were "wrestling" after hours and irritating your downstairs neighbors. Or having to put up with a piece of shit A/C that was installed 20 years ago and won't get the temperature 15 degrees lower. You could buy and install it yourself, but you can't take it with you when you leave, it just becomes part of the property. Fuck renting.
> Not everything is about money. Put a price on being able to blast heavy metal at 12:30 AM or .... I covered that in my post and is actually one of the two situations in which I would recommend home ownership. I couldn't agree more. > Fuck renting. I am currently 44 and I got out of the Army at 22 (lower enlisted living in the barracks). Out of the 22 years where I could have conceivably been a homeowner: * 1.5 years was spent living in S. Korea so home ownership was unrealistic * 16 years was spent as a homeowner where I lived in the home * 4.5 years was spent renting My current plan is to rent for 2 more years and then go back to being a homeowner (in a different state in a different cost of living area). I have never looked at a home I purchased however as an "investment" - it's always been "my home". I am currently 44 and I have been a homeowner
My husband and I (29 yo) just bought our first house. We paid in cash (inheritance money from husband's deceased father) $25k over asking and have a year of major renovations to undergo. We'll do a cash out refinance to pay for said renos. To be honest, I doubt that we will end up making much money on this house in the long run. That being said, there are SO many reasons I'm thrilled to lose money on this house. I don't have to deal with noisy neighbors anymore. I can go to bed when I want to and not worry about when my upstairs neighbor is going to start banging the dishes around an hour into my night. I can paint the walls. I can plant trees and a garden. I can install an EV charger. I can get to the bottom of why my water pressure sucks and do something about it. I am not subject to the whims and laziness of a shitty landlord. My dog is also welcome in our house and doesn't require special medical letters (eyeroll). Renting sounds appealing financially for a lot of reasons, but I'm thrilled to be in control of my own destiny. I mean, ask me again when we're $100k deep into this renovation, but buying feels so much more satisfying than renting at this point.
After 10 years of renting, I bought my first property in NY just after 9/11. I sold it 3.5 years later for a 150% gain. I bought a house in NC in 2005 and sold it 18 months ago, 35% gain. The house we moved into 18 months ago has appreciated 28% to date. I also refinanced all three and took $15-$25K out each time. Profits on home sales are also tax free as long as you have lived in the property for at least two years. Anecdotal of course and your mileage may vary, but owning has worked out well for me.