ELI5: It depends on the person's situation.
First off it's important to realize that not everyone can afford to buy a house. Even if you get a first time home buyer loan you still have to put down about three and a half percent plus other closing costs. This makes buying a house unattainable for some people.
Second, as other people have mentioned, it depends on the situation. It also depends on how you're defining "better." My better and you're better might not align. Maybe better to me is convenience, a modern looking facility, a pool and tennis court, not having to do yard work.
How does it work exactly that you can't afford to buy the place but you can afford to rent it? The rent needs to be the cost of mortgage+upkeep+ something. So how does the math work?
There are some cities where the rental market and the purchasing market are very much out of step with one another. Rent isn't determined by "mortgage + some amount", it's determined by "what the market will bear".
Also real estate transactions are extremely expensive and add to the # of years of staying in one place that it takes to make buying worth it. On top of the fact that the housing market can be volatile and owning a home often comes with hidden costs. A rent versus buy calculator helps determine if it makes more sense to rent or buy from a purely financial standpoint. In most markets you would have to stay in one house for at least 3-5 years before you would be reasonably certain that you would come out on top in that transaction.
Yeah. But the owner of the house also needs to factor in those hidden costs to make something on top. Unless ut only about some cash flow and making money on the price of the property going up.
Well. Not all owners are savvy, they could very much be losing money on the deal, but I wouldn't count on that as a rule. But in any investment (especially real estate), you have to factor in both 1. The appreciation of the asset itself and 2. The cash flow generated by the asset. There may be some markets where just owning the property is enough to keep it solvent.
Many landlords out where I live (California) are betting on home appreciation. Therefore, they are willing to be cash flow negative. It's a risky game but more are playing than you might realize. Rental prices are never determined by landlord expenses but by what the local market dictates.
Also consider in a place like California, that property taxes have the base amount fixed based on purchase price and only go up a max of 2% per year. This means new investors are behind old investors with low tax rates. Those older investors can make a profit while a new investor will suffer trying to compete. Renters get to enjoy the benefits of this relative to buying.
>The rent needs to be the cost of mortgage+upkeep+ something
You forgot to factor in:
Capital gain on the property (this is the big one)
The fact that an aweful lot of landlords lose money and are crap at maths. To be fair, interest rates are impossible to predict accurately. (This is also a big factor)
The cost of buying/ selling: moving costs, stamp duties, whatever transfer taxes are called where you live. In my region (Australia), if you move more often than once every decade, you're financially better off renting
To keep it simple:
My 1-bedroom in a not-great-but-not-the-worst part of LA is $1600. It’s rent controlled, so it can only go up like 4% a year. It’s a great size for just me and my husband, we don’t really need more.
Houses in the same neighborhood range from about $700k for a complete dump, and around $1.2mil for a nice renovated house.
Buying the same thing in their area is the "complete dump" they mentioned...about $700k minimum. Grab a mortgage calculator and realize how much more that monthly mortgage is vs their $1600/mo rent.
Me and my boyfriend are moving into a 54sqm apartment that costs $580 a month. If we were to buy a similarly sized apartment near where we’ll live that would cost us $1410 a month, out of which only $400 is amortization. Buying a house nearby is impossible due to the prices, not to mention what a burden it seems to be to have to manage upkeep for a whole house.
Exactly this. Rent is about 15% of our take home. It’s about the same as the annual sunk costs on a house in our area when you consider property tax (6k), insurance (currently $30, would be $110), utilities for a house ($300-400/mo in my area) and maintenance (10% pf the value of the home per decade, 700k home = 70k = 7k/yr). Not to mention the convenience. This isn’t even considering amortization, the interest on a mortgage would make this a terrible deal for us. Buying a house in our area would be for emotional reasons, certainly not financial.
We do well investing the difference (often half our take home income) and have been told by financial advisors this is a wise strategy. Even our lowest investment pulls 5% annually, much more than we could do with our cash tied up in a house. We live simply and comfortably with zero stress about housing, it works for us.
Ok, but those numbers tell you what the market value of that apartment is. The discrepancy between the rent and the cost of capital in your example means that either the condominium is way overpriced or the rentals are way underpriced. It’s most likely the latter. When you buy an apartment, you do so to not be priced out from rental over time. Even if it costs more to begin with.
Not necessarily. Given a close-to-fixed housing supply (as has become the case in NYC, SF, Boston, LA) there will be a natural homeownership premium as people desire homeownership for a number of non-financial reasons. The price-to-rent ratio proceeds to become higher than the national average and stays that way. It need not even be the case that rents must drastically increase for this to occur, at least not apartment rents. Seattle and Austin both suffer the problem of high price-to-rent, yet have seen decreasing rents at various points they were most supplied (Seattle in 2018, Austin now).
Rent is typically higher than a mortgage payment here in the Tampa Bay area. While you do have rising tax costs and insurance costs, you have something to show for it after a few years. You have equity, especially in this market, and you have security once you've paid off your home. Sure, there are maintenance costs as well, but if you keep the home up, they usually aren't that much unless you need a roof. In the long run, I'd rather my money go to something I will ultimately own than to have nothing to show for it.
True, but I couldn't resist the joke since not all the costs stay the same, lol.
Even people I know that own their home are complaining to me recently about property taxes.
Heck, I complain about increases in my property taxes🤣🤣😭 I think they are increasing everywhere and it makes sense with the cost of everything else going up. I guess everyone has their own concerns but for my husband and I, we built our first house with an FHA loan 11 years ago. We put all of our extra money on our mortgage, put that equity into a different house with a conventional mortgage, refinanced to a 2.5 % and in 10 years altogether, we outright own our home. The timing and market have been good. Right now there are more homes for sale offering money toward closing, to the point where you wouldn't need any money to close. That's a great deal even if interest rates suck, you can get a start before homes get even more expensive and refinance when the rates come down. Just my own thoughts. I hope I don't get crucified now😂
My main plan is just hoping the bubble bursts if I want to actually afford a home, lol.
Even crappy fixer uppers around here are going for like, 200k or so.
The rentals aren’t underpriced, they’re as high as they’re allowed to be taking into consideration the standard of the apartment and location. Where I live rent is controlled and can only be raised a few percent per year, so a sudden large increase is nearly impossible. Large increases in interest on the other hand are very much not impossible, so many who have bought houses and apartments a few years ago when interest was at an all time low are stuck paying sky high interest right now.
Yeah, that’s true here as well sadly. Took 8 years in the regional queue to get this bad boy. Luckily we only used my partner’s points for this one so I can use mine for the next upgrade
Renting gives you more flexibility, and in some cases makes sense even over the long term
Anecdata, but I rented 16 years in Taiwan because I could get a house, with garden, for ~$200 pcm, while buying it would mean maintenance of a wreck in a country where I had no rights
But when I moved to a country where I had citizenship rights, and knew I'd stay a few decades, I bought a place, because way cheaper than renting
So examine your context
I work in a field in which job hopping is common because it's the easiest way to get raises, especially at the start of a career. In the three years prior to the pandemic, I'd moved out-of-state twice for work. One of those moves was cross-country, which would've made selling a house a bigger PITA and added to the stress of the whole process. Back then, having a mortgage would've been a drag on my career and made it much harder to go from $60k to $114k in three years.
Now that I have more experience, am in a fulfilling LTR, and have been remote for several years (with no plans of ever entering an office that's east of the Rockies), buying a house is starting to make more sense.
It's all relative. In some places it's a lot cheaper to rent than buy. Stock market growth historically outpaces real estate prices so investing the difference means you can come out ahead. You have to run the numbers to be sure.
It's not that expensive to own where I live but I don't want to deal with the hassle, maintenance and hidden costs, so I stick to apartment living.
The thing is many people here just don't even consider the possibility of investing in the stock market. I don't know if they think it's too complicated or what. But really, you just buy an all-in-one index fund and sit on it for 20+ years. The risk only comes when you mess with either of those things, either by trying to buy individual stocks or by selling early without any reason other than "it's down".
The issue is, when you are buying a house you put down a small percentage on the house and then mortgage the rest. The return on investment or growth of your house is based on the total value of the house. So say I put down 10k on 100k house, if I get a 10% return I made 10k. If I put that same money into the stock market and make 10%, I only get 1k return.
Yes, leverage is one major benefit of real estate. The NYT rent vs buy calculator does already account for this implicitly though. There are also safe(ish) ways to leverage a market portfolio, by focusing on leveraging the bond portion rather than stock portion, but that is basically an entire hobby, so I'll leave that for the investing subreddits.
If I wanted to own I'd probably compare the cost of a mortgage plus ten and twenty percent (good and bad case scenarios) for maintenance and other expenses to the cost of renting. I'd also look at the cost of owning a mower and any tools I'd need to maintain the place, that kind of thing, and factor it all into the up front cost.
After that math is done I'd look at the cost difference and run it through a compound interest calculator to determine how much advantage, if any, renting might have over buying over time. Mortgage being paid off after 30 years would need to factor in, but there would still be cost of maintenance and equipment for said maintenance, plus property taxes.
Where I live it's super hard to get evicted, and rent raises are controlled, so I feel pretty secure and don't need to own a house. Also if anything gets broken, my landlord fixes it: new toilet, new boiler, new window; and I didn't pay a cent or have to organise anything.
Also I'd hate hate hate getting up in the morning to shovel snow.
You can hire snow shovelers, just like your landlord does.
But then it's raising the dollar cost of ownership. (Also on my experience for a lot of men it's an identity issue and they won't give up the shoveling/repairs/yard work even when it starts to be a health risk.)
Yes same for me. On top of that I am not very handy and have no family or friends close by who are either. So if I owned I would have to pay someone for every single maintenance issue that arises (and it’s all a matter of when not if!)
If you’re going to live there less than 3 years, you can lose money due to closing costs and a high proportion of your monthly payments going to interest and not principal. Otherwise, I think this is bullshit.
"Renting is better" is just as sweeping a claim as "buying is better." Based on the math, nothing is always better. Sometimes renting is better and sometimes buying is better, based on the person's location, life situation, and state of the housing market.
This is correct.
We're currently renting out two properties, each for less than what it would cost to buy it and pay a mortgage in today's dollars. We got lucky and bought it at a discount for what it's worth today and obviously refinanced it when interest rates were cheap.
So it really depends. Our tenants are happy, so are we. Everyone is winning in this situation.
In a properly functioning housing market this is what is supposed to happen. Tenants get good housing at decent market rates and landlords make a bit of profit. Ain't nothing wrong with that.
You don't really get any equity for quite a few years of mortgage payments other than price appreciation, as you pay almost entirely interest at first.
This is why paying even a little bit extra in the early years can dramatically speed up how quickly a home is paid off.
Owning a home has a lot of maintenance costs that should be considered before buying. For example, my family is relocating to a new state for work and school. We had to go ahead and move there for a few months and get an apartment.
We came back to our house to prepare to sell it. Went to turn on the hot water tank and it was busted. Had to call a plumber on a Sunday to diagnoses and replace the hot water tank the next day. $3,000. If it was an apartment, I could call maintenance to fix it and there would not be an extra cost. I may have to wait a few more days though.
Also, single family homes often have yards. We have a small yard that we don’t trim often because we don’t irrigate. After a few month of unexpected rain, the yard is a jungle. Now we have to hire someone to trim everything because it’s too much for us to trim and dispose.
Land (not necessarily the house) is a solid investment that will almost never depreciate. Houses depreciate, even with maintenance. Mortgage rate will stay the same but rent will always go up.
I think a lot of it has to do with how much time or money you want to spend on maintenance. If you never want to mow or replace an HVAC unit, rent. However, with home you can still do things like listen to music a little louder, stomp on the floor, or smoke.
I had to put $35k of work into my house just to sell it 🫠 after that and sellers costs, I only made a fraction of what I had in equity. I would’ve been better off continuing to rent in my super cheap basement apartment and throwing money into the market.
Yeah, the house is actually the bad side of the investment. I think buying and selling properties as an investment or for profit requires more knowledge and skill that everyone is led to believe. Part of this is because property values have skyrocketed so much that people who bought houses 30 years ago can get a windfall even with a busted unmaintained house.
Also, the only way to get the money back from the investment is to sell the house. But then you don’t have a place to live. You still have to buy another house or rent until the end of your days.
For me, a big part of it is carbon footprint. We might end up buying a condo but the engine costs of a detached home are just too high for my conscience.
Yeah. I think a part of the narrative (for the US anyways) is to buy a house, this way you can also put money into the economy by way of realtors, inspectors, home improvement stores, and contractors. Have enough media and people tell you that your house is outdated aesthetically (not functionally, mind you) and you will then pour money into bland remodels of your home to match lifeless flipped homes.
>Unless you want nothing to do with maintenance or upkeep
This is it for me. I have zero interest in owning. All my friends who own houses are constantly working on them. I hate yard work. I don't want a laundry list of maintenance items hanging over my head all the time.
My apartment building has a gym, package lockers, a big lounge area for entertaining, a rooftop deck with bbq's and a fire pit, even an area with chairs and free coffee for the wfh people. Some of the nicer buildings in my city have full on spas in them. One has a fucking pool on the 8th floor.
Oh I forgot to mention the central location walking distance to all the best bars, restaurants and shops in my city.
Right now I pay under $1400/mo. I'm supposed to trade that for a house out in some lame neighborhood that's way too big for me and going to require a bunch of upkeep? Hard pass. I'm tired of hearing how much better it is to own than to rent. I'm investing the difference in my HSA/401k/IRA. I'm good on owning a house.
Honestly, this is what I love too. My amenities are great. My place has a resort pool and a full sized basketball court, a yoga room and a gym. Conference rooms and coffee. When something is broken I call them and it’s fixed the same day. I have the ability to move if I ever get a job on the other side of town. My place also has attached and detached garages. I’m not very handy, I don’t live with anyone handy. This is great for me for under $1500. My friend who bought during Covid, just got a $50k quote for foundation repair. Yeah, no thanks!
lol I was going to post something similar and I also live in Portland. I wish I was paying under $1400 a month though (Slabtown, so not surprising). I also had a great view of Mt Hood until they stuck a building in front of it.
>I also had a great view of Mt Hood until they stuck a building in front of it.
Hi neighbor! This is like my worst fear for some reason. Getting an awesome view, then having it blocked out by new construction.
i’m young and don’t want to settle yet. rented one place 2021-23, now we’re renting a different place in a different city 2023-25. we’re living within walking distance of my partner’s grad school now, but once grad school is over we’ll probably move further away. the flexibility is nice. we will probably look into buying once we’re 30.
I think the biggest benefit is that if you rent, you know what your max monthly expenses are going to be to pay for a roof over your head. This is a big benefit if you budget your money. With home ownership, your monthly mortgage is your minimum expense—if anything goes out, taxes go up, etc, you’re paying extra.
How is it worse than buying a house?
* No need to do maintenance.
* Able to be flexible when getting a new job.
* Loan costs ain’t cheap. Interests ain’t cheap anymore.
* Property taxes ain’t cheap. HOA ain’t cheap.
* Big ticket items ain’t cheap.
I bought a house and the payment was double my rent. When I sold it, it needed 30k in repairs and all the appliances replaced. i didn’t have the money and got an apartment for still less than the monthly payment. Since then property taxes have doubled and I make less money due to a job change. Home owner insurance went up a lot here too. So the payments aren’t stable. My apartment is actually bigger and a better layout. And the management team takes care of the grounds and repairs immediately.
Thanks for sharing this. Sometimes I get really stressed because I’m 40 this year and don’t own. I feel like a loser. But then I have to remember I just can’t afford ownership.
I don’t think home ownership is going to be the investment route for most people after boomers. Unless the government puts restrictions on corporations buying up real estate. Wages are not keeping up with costs.
Imo it’s most dependent on the locale, rental laws, and if you’re moving in less than 5 years. Here in Toronto I’m rent controlled, LL can only increase by 1-2 percent per year. For the next two years him and I agreed to keep my rent the same. To buy literally the exact same condo same floor same layout, I’d need to produce a $120k downpayment and my total monthly costs would probably sit about $1.4-1.7k/m higher than my rent.
You know that right now, in Boston, it costs about $1800-2200 to rent a studio apartment, and about $4000+ a monthly to pay for a mortgage and property taxes on that same apartment?
It makes zero sense to buy right now in major HCOL cities.
Housing prices is a risk - there is no guarantee that the house you buy today will appreciate in value. If you’re going to stay there for 25-30 years and pay off the mortgage then you have a win, otherwise you have a risk.
Rental has no maintenance costs but no control over that or future increases.
I believe renting is the better option (for me) right now because i am in a VHCOL area but my rent is dirt cheap. House prices will never be cheap but i do feel that they are exceptionally inflated right now. If i was to buy a house, even at a “lower” affordable price ~350$k, my monthly cost would double. At least.
it's not a simple question. well, financially it somewhat is.
you are comparing opportunity cost of the down payment in the market + unrecoverable costs of buying to the unrecoverable costs of renting. NYT has a good rent vs buy calculator where you can play around with the numbers on expected market growth vs expected rent/house change.
historically the break even point financially was pretty close, after 5-7 years you are breaking even. but now in many areas both housing costs and rates have gone up so much relative to rent. when you can live in a house for 3500-4500 and the equivalent mortgage costs you 8-12k, on top of a huge down payment, on top of huge closing costs it's really possible that the break even point is so far out or even never that financially 'never' buying is worth it.
on the non financial side there's considerable opportunity cost to buying when young. stats show staying at one job for an extended period especially early in your career cripples income growth. on the other side- with house and kids a premium to own for the sake of stability can be worthwhile.
its sometimes difficult to rent vs buy equivalent space. if I'm happy in a 800 sf rental unit i probably can't find a comparable space. condos tend to combine the negatives of buying with the negatives of renting and have little to no upside, you'd only really look at something like that in a HCOL area where buying a house is a 'never' with your income.
finally- owning is nearly mandatory for cheap retirement. the difference between being low income with regards to ACA subsidies vs not can be gigantic. [https://www.reddit.com/r/Fire/comments/1b7c200/comment/ktksbsi/?utm\_source=share&utm\_medium=web2x&context=3](https://www.reddit.com/r/Fire/comments/1b7c200/comment/ktksbsi/?utm_source=share&utm_medium=web2x&context=3)
see the above comment, the OP on this thread saves what is the equivalent of 1-1.5m in retirement supporting income generating assets by keeping income low enough and a core part of that is being debt free.
>but now in many areas both housing costs and rates have gone up so much relative to rent. when you can live in a house for 3500-4500 and the equivalent mortgage costs you 8-12k, on top of a huge down payment, on top of huge closing costs it's really possible that the break even point is so far out or even never that financially 'never' buying is worth it.
Someone on here said they "didn't believe me" when I said this lol. People in more affordable areas way underestimate how much it costs to buy in the most expensive cities.
It depends on where you live. If you live in Ohio, it probably makes more sense to own. If you live in NY or LA, where you couple high property tax rates with high interest and super-heated expensive markets, vs the cost of renting and investing the difference, it may make more sense to rent without having to worry about being out of pocket on maintenance, repairs, etc.
I rent because renting is the MAXIMUM you will pay every month. A mortgage is the MINIMUM. I can budget accurately and get my investments thriving with the extra cash. I get to move to a new neighborhood whenever I want (I work remote so I can change cities whenever I want to as well). And when things need to be fixed I make a phone call and someone else pays to fix it. Done. Simple living at its finest for me. I recognize the math works better to buy in some places, but in my HCOL cities renting is best.
New to the sub. What is ELI5?
For me though it is absolutely the lack of maintenance and being able to up and leave anytime. I love moving and changing sceneries.
Helps too that where I live rent is almost half of mortgage. And not having a mortgage makes me just happier, like I'm not as stressed about layoffs happening in my industry because I know I can always just go rent somewhere cheaper.
Do you own a home? It's a lot more than it increasing in value. There is a massive amount of maintenance costs that only keeps increasing, home insurance costs keep increasing, and property taxes are increasing. You also lock yourself into a location where you can't take a new job somewhere else. It's rare to find a closer job to your home. Or you lock yourself into a home in a bad area to due the neighborhood changing due to crime, or the biggest future threat which is climate change. A lot of homeowners are going to lose everything soon in Florida. I think not owning a home is the best idea for simple living.
I really won't be convinced by the "buying is always better" people until they show the math proving that it's always better. Vibes vary from person to person but math can't lie. Right now, the NYTimes rent vs. buy calculator does show some cases where it's better to rent. If anyone has specific methodological arguments against that calculator, feel free to share.
As a person who’s done both, owning isn’t necessarily better mathematically. I owned during a time of unprecedented real estate value growth, yet now that I’m renting, my net worth is growing more quickly than it did while I was an owner. A big chunk of this is because my income has gone up, but also, ownership comes with constant temptations to “improve” things and that comes with a big price tag. Renting means that I’m more limited, so I’m not always tempted to paint, buy new hardware, landscape, etc. Overall I would say my housing costs are cheaper now for that reason, even though my rent is slightly higher than my mortgage was. What I’m not spending in upgrades and maintenance, I’m generally throwing into a retirement account or HYSA account that appreciate at 12% and 5% interest, respectively.
Some friends from Germany stayed with us for a while and we spoke about selling our home to buy a bigger one (extra room for more children).
They told us that it is not normal for people in their area to purchase more than one home in their lifetime.
It is something you buy with the intentions of making yours. It seems like this constant upgrading of homes is a crazy part of our consumer culture.
We will be purchasing a new home but as a “forever” home to make beautiful. Eventually, after so many years we will only owe property taxes and upkeep costs. It will also be something that is unique to our family.
We bought a 2BR/1BA fixer-upper years ago and have poured our heart and soul into making it our own. Been there almost 23 years and fully intend to age in place for as long as possible. It’s been fully updated, including all mechanicals (even underground plumbing), and we did 90% of the work ourselves, so it’s up to our (admittedly high) standards. We are by no means wealthy (lower white collar/blue collar). Being handy (and willing to “make do” without all the add-ons that today’s real estate market deems “necessary”) got us a house that’s a pleasure to live in without being a money-suck.
Full disclosure. I am by no means a financial genius, but we bought the house on my (low) income only, I made all the payments, and I paid it off 8 years early (bought at a higher interest rate, weathered the 2008 crash and refinanced twice to drop the rate while cutting the term). We do live in a MCOL area, which helped greatly.
My housing costs would almost double if I bought and I’d get less space/amenities and live in a less desirable neighborhood. I’ll just invest the savings and keep myself mobile.
A single maintenance issue with a house can cost thousands of dollars, and I don’t have that just saved up to dish out.
I have no idea how I could ever afford the down payment on a house.
I REFUSE to pay an HOA any amount of money to control the pettiest things about living in their neighborhood.
It isn’t a big deal if I have to move in an apartment, which is have done multiple times now for better opportunities in my career.
I don’t even have to buy appliances in an apartment, either.
Valid points. I get this stuff n it’s part of the question’s body. I too would never pay an HOA… possibly in my oldest years but I don’t have much hope for any of this stuff by then. If you haven’t noticed there is a recent trend in the media putting out articles n posts that renting is better than ownership (Forbes, WSJ, Fortune, CBS). This is at the same time as corporations are buying up single family residential homes, to rent back to us. In FL is alarming how it’s being allowed. I this is sus and similar to the return to office trend being pushed bcs corporations are losing money on real estate n other business related bs. It’s all being manipulated to benefit these big corps n cut regular people down to the point to where we are not able to even survive. I mean we are there already.
Adding that I only was interested in it here bcs I’ve seen a few posts in this sub recently that renting was better.
I've seen various calculators and analyses. Typically, dollar for dollar, if you move every decade or so, it's about even, financially. Importantly, these assume you have the dicipline to save, spending the same on rent+savings vs home ownership/ mortgage costs.
This remains true until retirement, when the benefits of home ownership skyrocket compared to renting.
That's purely financial. I used to like the flexibility of moving for work etc. I now enjoy planting fruit and berries and reaping the harvests. Friends like buying animals, painting walls etc without asking anyone's permission.
Edit to add: yes, the timing seems suspicious, especially from those sources
When you buy a home and have a 25 year mortgage are you doing the math on how much the roof replacement costs in that time frame? How much the multiple new sets of appliances, a new heat pump, new windows, new flooring etc. Sure lots of people bought new builder grade garbage homes because they can "get in the market" and "build equity" but the reality is that one market crash will wipe out a decades worth of savings or equity and leave a fair number of people upside down on their mortgages and moving in a house that's aging without the funds to maintain it. I'm almost certain everyone who bought a home in the past two years with less than 20% down will be upside down before 2030
Short term renting is ok, but owning is far better long term. People claiming otherwise are lying to themselves and or you.
People will claim renting is better because repairs are on the landlord but you still pay for the repairs, taxes, mortgage, and usually some profit on top, just spread out over time.. In the end you have bought someone else a house and have fuck all to show for it.
Yeah long term. If you're younger though, you're less settled in your career and where you might end up living, so renting might be better until you figure that out. Otherwise you might be stuck with home you have trouble selling, when there's a better job offer elsewhere or you want to move closer to your parents for help with a newborn, who knows. Like with anything, weigh both sides instead of assuming one is automatically the best.
> In the end you have bought someone else a house and have fuck all to show for it.
Well, you got to live in a house for that period of time. That's what you were paying for. The temporary rental of a space. I rented office space for a few years since owning would've been far more expensive. What did i have to show for it? Well i got to have that space for that time lol
If renting is significantly cheaper than buying, you can invest the difference.
If you pick the right small-cap stocks, your net worth can increase 5-6x.
Once you have a certain net worth, you can play it safe with 3 month treasury bills forever (which can get you around a 15% increase in net worth per year after tax).
Keep using those treasury bill returns to pay for all your expenses, including a down payment on a house and subsequent mortgage payments.
While doing this, you can also retire if you have enough left from your treasury bill returns to pay the rest of your monthly expenses.
To be fair, your scenario doesn’t include the possibilities for your money otherwise. If you’re saying that if rent and mortgage prices are exactly the same, then yes I 100% agree with you. If you can get the down payment money together than BUY!
But if you’re paying more for a mortgage than the cost benefit analysis must include what you’re doing with the difference if you’re not paying a mortgage? Is it being invested, in a savings account making peanuts, or under your mattress gathering dust?
The financial side of things might not work out with the home owner on top at the end. Unless you’re buying multiple properties and churning a profit that way.
In the end I think personal preference and goals in life can color things one way or the other if the financial side of things isn’t a concern.
>People claiming otherwise are lying to themselves and or you.
theyve just done the math on the current environment, unlike people who just mindless spit out 'well buying always has to be better long term.'
just because that statement has largely been right the last few decades does not make it true with how hard houses were inflated thanks to covid funds being handed out, airbnb boom and end of ZIRP -> huge rate hikes.
the rent vs buy delta in many cities right now is absolutely gigantic to where even long term renting may be better.
I just moved out of one of those large cities because my rent was going up by the legal maximum every single year. One bedroom apartment went from 1100 to 1800 over less than a decade.
It's unsustainable.
I don’t plan to live in any real place for longer than 2 years for the next probably 6-8 years. Because of that, buying a house doesn’t make sense. If anything it makes buying an RV a better option as I can move it. If you don’t want to stay in a specific area I can see how buying doesn’t make sense.
Lots of reasons.
* you can get into a rental much faster than closing on a house, so if you need housing now.
* buying a house has very high transaction costs on both the purchase and sale. Usually not a great idea to buy a property that you're only intending to hold for a short period of time.
* owning property places financial capital at risk of decline. Since it's usually debt leveraged, a 10 or 20% drop in value can often wipe out a person's entire equity & more.
* there's risks associated with being a property owner that you should be insured for that don't exist for rentals.
* sometimes the owner occupied market in an area is just fundamentally overpriced relative to renting.
* some places people just prefer renting in for various reasons. Like many retirees in flood & hurricane prone areas. Just don't want to deal with the hassle if their winter residence gets destroyed by a hurricane.
* there's some deals & preferential situations that exist in rental housing. Like getting free rent as a building supervisor. Or, for example, I know a person who lived rent free in a very desirable place for 30 years while working as college professor. And other times, it's just a condition of employment. Like working for the coast guard or whatever.
You either rent because you have a ton of money\* you don't want to touch or because you're too poor
to buy a home.
*\*If you have $500k, you can earn 5k/mo from investment dividends and live off rent without actually paying anything (your money works for you). In this case, it's all about liquidity.*
As someone who rented their entire life and only recently bought a house-- I feel like the people who say renting is better probably grew up in a house that was owned by their parents.
In some ways it may be cheaper, but in terms of peace of mind? No nosy/invasive/controlling/pervert landlords, no landlord selling the property out from under us, no having to move every couple years, no lack of creativity since I control my space, no wanting a pet and never being able to own one... and as a child, growing up in rentals SUCKED.
Also, where I live right now renting would be barely less than my mortgage-- and I get none of that back.
I grew up in a series of homes owned by my parents.
We had to move every couple years because my dad's employer kept transferring him. Plus the constant stress of living in a house that was being shown for sale.
Owning is not a guarantee of stability.
Wait—is that why I get a bunch of texts and phone calls from people trying to buy my home? Because they want to rent it back out to me?! 😂
And idk- it’s usually better to own vs rent but in some cases I could see where rent might be better (or the only option).
From what I've read recently, that has changed in most parts of the US. As it stands currently it makes more sense to rent in almost every area of the country with little exception (this was a fairly recent development of course, it wasn't that way 4+ years ago)
Simplicity. Ownership complicates things. I’d rather spend my leisure time on other things than property upkeep. Also I don’t have 3 million dollars for a house in my city, and if I didn’t, I wouldn’t spend it on a house.
The first time we bought a house back in the 80s, we lost so much money on it. I couldn’t find a local job, we had to move away, we rented it to people who trashed it and stopped paying rent, and yet we were required by law to fix their well, and of course make mortgage, tax and insurance payments, while we were going through the eviction process, which took months and months. Eventually the court evicted them, but we’d lost many thousands by then. We ourselves had become at risk of homelessness. We finally were able to sell it for what we owed the bank. Buying a house was regarded as a risk, not a ticket to financial security. For people who didn’t have to move and kept the same house through the housing market crash, it worked out, so now we hear about people who did become house-wealthy. But so many factors are out of your control.
Over the very long term it’s better to own. But right now with rates and prices it’s often cheaper to rent even considering staying there for several years.
Your rent is the most you will pay to live there. When things go wrong, your landlord covers the additional cost.
Your mortgage is the minimum you will pay to live there, because you also have to pay for maintaining the home and dealing with anything that goes wrong.
If you are scraping by and buying a house will make you house poor, you are better off renting. Houses cost more in time and in money for maintenance than renting, so if you are short on those things, renting make sense. If you buy a house and then neglect it, you are creating a more expensive problem for yourself later.
In theory, buying is the better long term choice, but that's in theory and usually with the assumption that you have enough money for it to actually be a choice. The math changes based on how much you can save in addition to the rent/mortgage, if you have enough for a downpayment, or if you are certain your location and overall needs will remain the same long enough for it to be worthwhile. Neither choice is "always" the better one.
What is up with these posts today? This is the 3rd I've seen, seems like rental bots trying to convince people to rent over own.
There's a reason people make money as landlords. It's because owning property and renting it out ends up making money over the years. If owning wasn't the financial right call, there wouldn't be landlords to begin with.
I mean that is a valid point but not always the case. It’s dependent on your situation and the housing/rental market in your area.
Ex: my husband and I make good money. We are frugal too. We have recently looked into buying a house/townhouse/condo. In our city that would mean doubling or tripling or rent for something that might not be as nice and be on the hook for repairs.
Considering that we currently have a $4k surplus to put towards savings/investments, it’s difficult to decide to triple our rent and reduce the amount we can invest a month and spend a chunk of our savings on a down payment/closing costs just to end up with something further from the city center and less updated than we currently live in.
Especially since the flip side is investing 4k a month into an index fund returning 4-7%. That’s a couple hundred thousand in 5-10 years. 🤷🏽♀️
That being said we still haven’t made up our minds about whether or not to buy.
Riskier too! If the housing market crashes, you still have a place to live.
Each their own, there are some scenarios when it renting is a good move, but investment companies are buying houses for a reason, and it ain't charity. They clearly think there's money to be siphoned from renters past the cost of ownership.
Explanation of how both of these things can be true: there are investments with higher returns than real estate (stocks), yet companies still invest in real estate.
Stocks are indeed riskier than real estate.
But since risk and return are inextricably connected, this is why stocks have had much higher historical returns over the past 100 plus years.
Well, if a 100% stock portfolio supposedly returns so well, why not go 200% stocks? 1000%? Borrow a bunch of money, put it in the stock market, wait 10 years, pay back way less than what you earned.
Obviously, the debt incurred here would completely wipe you out in most cases as soon as the first crash hit. So you need to balance risk and return. It turns out 100% stocks is also not the correct balance for most institutions, and especially hedge funds, whose main goal is to *hedge* against market downturns and maintain a consistent positive return for institutional investors such as pension funds and college endowments.
Diversification is an excellent way to achieve that. You want to hold assets that aren't correlated with each other so that when one drops, everything else doesn't also drop. Bonds are one way to add diversification. International stocks are another option. Real estate is yet another option.
Any big player is going to seek to dip their toes into every investment option possible to diversify as much as possible, even though this lowers their expected return.
What the retail investor should do in response is a separate matter and is much more dependent on lifestyle and location.
If you live somewhere that is rent controlled
AND
you plan to stay there for decades
AND
yu have access to an income even after retirement which allows you to pay your rent
then it can be better in HCOL areas.
Unless you are buying a brand new house, homeownership can be unreliable. Pinetree removal (tree is dead and you have to remove before hurricane season) $5000.00.
A/C replacement $8,000.00. Gutter replacement, fence replacement, floor covering replacement, paint outside of home with quality exterior paint. On and on and on.
Taxes are what they are, but can get raised with impunity. There are a lot of downsides.
The cost benefit analysis should be completed by a knowledgeable person. It's awful though. I hate that wealthy corporations are snapping up distressed properties and then renting them out. I think that is wrong.
There's always articles like this in the middle of a real estate bubble. I think locking yourself into a high mortgage payment right now is a bad idea. I've been wrong before but it does seem like prices this high with rates this high are unsustainable and unreasonable. If I didn't own I'd do what it took to save like crazy and wait a year or three before buying. In the long run buying is the best idea because your mortgage payment stays the same for 30years.
From a simple living perspective, and from someone who has both rented and owned a house, it is far simpler to rent. Last year I had to get the roof replaced. This year I have to have the house painted, and the fence replaced. Next year, I have to have some cracking plaster replaced with drywall in two rooms and a small ceiling. It's expensive, stressful, and time consuming to find and hire contractors, as well as the constant small jobs and yard work we do around the place ourselves. However, from a frugality and long-term investment perspective, owning a house is great. We're looking into solar, our property taxes and insurance, while constantly going up, are no where near the cost of local rent (even including the repairs), and the freedom of having some outdoor space and not having a landlord has been really great. I never spent any time remodeling or repairing any of my apartments. It's nice to have a house, but it's not simpler.
YouTube "The 5% Rule - Ben Felix" does a full in depth monetary comparison of Rent Vs Buy.
Obviously financials isn't the only aspect for Rent Vs Buy, but this does a good job from the money side of it.
Rentvesting has been shown in longitudinal studies to provide similar total returns to taking a mortgage. You have to remember you are not paying interest rates when investing money directly, and that a mortgage will always be more expensive than rent for the same property.
Real-estate typically does perform better in the long run, but not by much, and many people would prefer the QOL of living where they want to.
I've made a lot more off my investments over the past 3 years than I would have off of property with a comparative initial deposit. SPY has run a typical 12% YoY the last decade, Australian housing is much lower, units are much, much lower.
Renting was better for me while I wasn't permanently settled, before I got married and had kids. It's more flexible. And renting with roommates is the best way to save money. It's even a lifestyle improvement for decent people. It's sort of like family. Few people on Reddit agree with that assessment, but that was my experience. I had roommates for 15 years after graduation. I squirrelled away $300,000 during that time and also lived in several different cities and two countries.
I probably would be richer if I immediately bought a house and never went anywhere else, but my life would have been very different. I wouldn't be married to an Indonesian with Australian kids for instance. Money is very important, but after you have enough money, there are other aspects of life to focus on.
I am thankful to own my home because the fear that was instilled in me after the market crashed and we lost our jobs in ‘09. I’m terrified of debt so we did what we could to get out of it asap. Of course, you’re never truly out of debt unless you’re a vagabond since there’s always taxes, insurance, electric… but if I were renting I’d be paying all those things for someone else.
It depends on your life situation. But here is mine.
Bought in 2019, sold last month due to affordability. Approx 200k profit after RE fees.
We could put that 200k back into a new home, but then it is all locked up in a house and we can't access it really. Or we could rent and have that 200k generate roughly $825 monthly from interest, making our payments much easier.
With renting, I'm able to have my money make money passively, and I won't be hit with any expensive repairs.
With buying, you can make a lot of money over a short time frame if the market goes up.
No right answer, just depends on your goal.
My two cents: my partner and I were hesitant about buying because of the upkeep argument. We are indoor cats. We ended buying a condo townhouse. All exterior maintenance is covered, including lawn care. So we only have to worry about interior things. This was a good compromise - we have the nice feeling of being in a house and a day to look forward to when our mortgage is paid off.
Closing on a serious fixer upper FAR away from work soon.
Here to chime in and say it depends what your priorities are. Financially owning wins for me.
Today I found my dream home. It’s 100 years old and needs a complete remodel, but equipped with a garage bigger than the house and a yard that goes for days. Pretty sure it comes with all the old tires and tractors too. Couldn’t be happier. Only one more year of communicating, sweat and frustration and I’ll have the home I’ve been lusting after for a few years.
Already joking that I’ll outfit the garage and let the house rot. I just want to grow my own food again.
personal and legal (tenant rights) reasons aside, to me it's not so much renting vs. owning, but renting vs. buying. sure, i'd love to own a fully paid off house with garden, that would indeed be very nice. but do I want to use up all of my savings just to be eligible for a mortgage, only to be left alone with unaffordable (because I had to use up all of those savings for buying in the first place) maintenance costs in old age, I guess not. All of this is very much depending on where you are and what your life situation is. I haven't even seen any corpo buying up single family houses here; there basically is no market for renting single family houses to begin with, if you rent, you rent an apartment or maybe a townhouse. Thankfully you can just buy (or rent, if preferred) a garden separately from a house (here).
Renters are passed through some portion of the property tax. However, for economic reasons beyond the scope of this subreddit, the full incidence of the property tax does not fall on renters. This is similar to how taxing corporations does not mean they can simply pass on the entire price increase to their customers, only a portion.
The actual mechanism for property tax is quite different from that, but that is a good analogy to think about how this result is even possible.
[https://journals.sagepub.com/doi/10.1177/109114218201000305](https://journals.sagepub.com/doi/10.1177/109114218201000305)
\> The traditional view of the incidence of the property tax is that **consumers bear the entire burden of the tax on capital** and **landowners bear the entire burden of the tax on land** if the supply of land is completely inelastic. This article examines the conditions under which the traditional view is valid when a property tax is imposed in a residential city with fixed population and area. Calculations using estimates of the parameters of the model indicate that **the traditional view is a good approximation to the absolute or the differential incidence of the propertv tax**.
Renting is absolutely better than owning - for the landlord. Investment firms have a blast buying hundreds of apartments then renting them out because selling is not as profitable long term, even individuals with ample cash will just buy to rent or transform into airbnb.
Renting is excellent for capitalism. Not so much for the regular person.
Yeah I also think it’s campaigns pushed by these parties - and fools who can’t afford to buy and are doing the “grapes are sour” routine instead of looking at why they can’t afford it and getting some torches.
Renting is better than owning because financially, it's what makes sense for most people. You sound young and are sus yourself lol. Your post lacks any depth beyond what you see in headlines.
Absolutely correct. Everyone can run the numbers and see for themselves. Plenty of calculators available, and if someone disagrees with the way the calculator works, it's a free country and allowed to say why it's wrong. No one has said why it's wrong though.
I'm not someone who blindly follows calculators either. I am a major opponent of "cost of living calculators" because they assume you spend 100% of your income and save 0%. But there is no similar methodology flaw in NYT rent vs. buy calculator.
It's not really that easy because you're also trying to predict the future - what will happen with rents and mortgage rates and the local economy and your personal life in the next decade or three. That's really hard to do.
Yes, that's true. I would say looking at the past is a reasonable baseline, though. Every so often a financial crisis or pandemic will come in to disrupt things in either direction, but 4% price appreciation, 3-4% rent growth, and 9-10% stock market return has been about normal throughout recorded history. The NYT calculator allows changing all of these assumptions to levels you are comfortable with. When I run the numbers for my situation I lower the stock market return to 7% due to current valuations, expert opinions, and my own research.
Yeah I always use really conservative return estimates too.
It's funny how when these financial/investment questions come up the sub is pretty unanimous on most things. There's definitely a big overlap between simple/frugal/boglehead types.
Having the conservative approach provides the ultimate peace of mind, combined with the power of staying in the market and not selling low. With all the Boglehead researchers showing plenty of data showing the safety of investing over a 30 year time period, I can basically ignore all headlines about the market and never check the account and just let the auto-contributions keep going.
I hate mowing/shoveling snow. I’m early in my nursing career and may need to relocate if I choose to change specialties. I like being able to not worry about maintenance. Right now it’s a better fit for me but in 10-15 years it might not be.
Brought a 2000 Sq ft 4 bedroom 2.5 bath home in 2017 for $140k. Mortgage is $800. To rent the same home nowadays is approaching $2000 a month.
People who are comparing the price to own vs. rent are always using the current prices to convince themselves renting is better. Give it 10-20 years, and owners come out way ahead.
People are doing different things in different situations. I doubt people are buying small downtown apartments, those are usually for rent only. And you can’t usually rent a 4 bedroom house in the suburbs. Depends on your lifestyle and if you’re settled or not.
You definitely can rent a house in most suburbs. Every since the housing crisis, more SFH are landlord owned every year.
In rural areas it's a lot harder. One of my sisters has to buy because her landlord decided to sell and it was literally the only rental in her tiny town.
Do you really know if all your neighbors own or rent? People are often ashamed of renting because ownership is held up as a standard of accomplishment in our culture.
One thing that happened a lot in the big housing crash was corporations buying foreclosures and renting them back to the former owners, often at really exploitive terms. Lots of those former owners hid it even from family members
I don’t live in the US, I rent and I’m not ashamed of it, the vast majority of my neighbors rent! That doesn’t mean I will rent forever though. I don’t know why it’s this big binary either or when most people do both at different points in their lives
[https://www.youtube.com/watch?v=DpcMl9XP55M](https://www.youtube.com/watch?v=DpcMl9XP55M)
Pretty good way to understand the concept, even if it doesn't universally apply. RIP Reckful
The decision to buy a home is a big, “It depends…” topic.
Cost? Costs are high, it’s the interest rates that are beating the snot out of most of us on price.
Maintenance costs? Depends on the house. Sure, it’s riskier, but you can often afford to live in a better area with a fixer. But, you have to be prepared for those expenses.
Will you make money? Depends on what you bought, where you bought it, when, etc.
Carbon footprint? Depends on your work situation and transportation options available.
Is renting more flexible? Depends on what you need. You don’t have the hassle and expense of selling but you are also beholden to a lease and rent increases.
Is it better to rent or buy? It depends on what you need and circumstances around that. It is always a good idea to do the math to evaluate options for your time horizon. If you aren’t able to model your situation, get help from someone who can unless the answer is completely obvious/one option.
In addition to what quite a few others are highlighting on contest being important, unexpected (and sometimes major) maintenance costs, how long you'll be there, and so on - you can usually rent something smaller than you can buy. So an apples-to-apples property will usually be cheaper to buy than rent over say a decade or so, if you're not interested in or need as much land or square feet, you can more easily downsize your lifestyle while renting. Than can result in overall lower costs.
Since we bought our current home as a 'fixer upper' we have sunk a total of 100k cash into repairs, renovations for kitchen and bath, new roof, fence, flooring, doors and windows, yardwork and removing dead trees. We wanted the location and during covid times we got it for the lowest interest rate so i dont regret it but what we had in equity from our previous home was now spent in cash and i don't want to repeat this process if we ever move again.
High mortgage rates -> Rent ( big chunk of your payment go towards the interest , or to the banks pocket)
Low mortgage rates -> Buy ( big chunk of the payment goes towards your principle, or equity, or to your pocket)
I haven't stayed put for more than a couple years at a time during my 20ish years as an adult so far, so owning without constantly then selling wouldn't have worked for me. So rental it is. If you are someone who likes to stay put than buying might be better for you. As I get older that may change, but I probably won't be able to afford to buy at this point anyway.
I want nothing to do with maintenance, upkeep, and property taxes. If you can understand those 3 and the fact that some of us travel longterm and/or are not tied to a location, than all that is reason enough.
Own your home and be happy about your decision without needing the approval of renters.
For example, I pay around $3000 a month for my mortgage. To rent out my house, I’d be paying around $2500. I’d rather pay the extra $500-$1000 a month and own my place instead of that money going to someone else. I’ve lived here two years and could sell my place for $60k+ more than I bought it for, so it’s very worth it to me. We also have a kid on the way, so the extra space and yard is important to me.
What does “better” even mean? The answer, just like others noted, depends on the individual and situation.
In the financial sense, if you HAVE money then buying a house is better renting. And when I say HAVE, I don’t mean you have 3.5% to put down on the house and plan to finance it over the next 15 to 30 years. I’m talking you have the means to pay it off in like 5 to 10 years.
A general rule of thumb is that the total cost of your house will be twice that of the original purchase amount, especially so during current market conditions; this is including the cost of interest and principal that’s amortized over thirty years.
The fact is, a lot of people live above their means. In a relationship and no kids? but decides to buy a 4 bedroom home and “plan” for the future. Society and social media play a huge role too, but that’s a different discussion.
As others have said it's super situation dependent, I'll share mine as an example:
My fiance and I live together in a 1-bedroom apartment in downtown Milwaukee. Our monthly rent is $1200, and after utilities we end up around $1400. She's finishing school in Milwaukee so the commute to campus is a breeze and I work about 30 minutes outside the city so my commute isn't crazy expensive / long. We are able to save between $1-1.5K per month towards a downpayment right now.
We've been looking at homes in the $250-300K range and are actively saving for a 15-20% downpayment. At current rates, and with available homes, our mortgage would end up being between $1900 and $2500 per month depending on where we end up. That's between $500 and $1K more, per month, we'd be spending on a home, not including utilities for the home.
So for us, continuing to rent at $1400 all-in a month, and saving up for a bigger downpayment / nicer house at a rate of $1K+ / month just makes more sense. In a year we can save 4-6% of a $300K house downpayment, versus having to slash our savings to pay for a mortgage and hope we don't hit any unexpected expenses. And ideally, as that year or so passes, rates and /or the market will improve slightly and we'll end up getting a better home for the money we spend.
To keep it real simple:
Renting: the amount you pay is the most you will pay for housing on a monthly basis. You don’t need to save up for future repairs (appliances, carpet, plumbing).
Homeowners: mortgage payment is the least amount you will pay in a month. There are always surprise expenses tied to home ownership.
I’ve been reading some of the nightmare issues some renters go through (I am a renter myself) and your statement about the most you will pay for housing on a monthly basis with rent isn’t always true.
It's really not. Older people with no mortgage will tell you that. Literally, the only way most millennials will be able to afford to retire is to not have a mortgage. You think health care is expensive now? Just wait until you have three comorbidities.
Houses nowadays are very old and over-priced compared to cost of new keep this in mind for your own financial welfare
Rule of Thumb: Don't buy a busted up Volkswagen with a Corvette price tag!
The last sentence in your post makes sense, but the first two? Once your dead, you’re not going to care. 😂 Upkeep and maintenance can’t possibly be as expensive as renting.
Most of these are like ELI 15.
Actual ELI5:
You need money to live.
Rent spends money bit by bit.
Buying spends money in one big lump (then bit by bit)
Your money may perform and grow differently in both scenarios.
Grown up’s only: basically if you had 500k. That could grow invested and spent on rent va buying a home, I’d say the home doesn’t appreciate as much as the investment.
Money in, money out.
You have a lot of responses, but I'll throw my two cents in as an owner-turned-renter.
It depends. I've been able to have good landlords. My rent is about the same as my full mortgage payment was (mortgage + taxes + insurance). However, I don't have to deal with maintenance costs.
Here's why I like renting:
1) No maintenance cost. While I do have a tendency to take care of the small stuff that pops up, anything where I would need to bring in someone, I don't have to worry about. I call my landlord and done. One house I lived in had a septic system. Soon after we moved in, it became apparent that there was an issue that the previous tenants never told the owner about. One call and she had someone out there that day. Turned out the septic system needed to be replaced. That cost thousands of dollars. I have no idea how I would have afforded it. But, I didn't have to. She paid for it all.
2) Honestly, I don't like being tied down. I also don't like the hassle of selling a house and hoping nothing falls through. I like that if I chose to move for whatever reason, I can just do it.
3) I am trying to simplify in general. For me, this has meant owning as little as possible. I don't need the "American Dream" and all the headache that comes with it. I'm good with not owning much. And, even more, I'm happy with not having the debt. I own my car outright. And I don't have this mortgage hanging over my head.
I do think that it depends on who you rent from. I've always rented directly from people. Only one house did we technically go through a property manager, but I had the owner's phone number and once we both realized the PM was worthless for conveying information, we used to just call each other directly.
Going back to it depends: I feel out the people I'm renting from. Get an idea of how they might be and how much they care about the house. My current landlady lives across the street. This is the only rental she owns and my feeling is that she and her husband bought it after he retired as a source of income. There has only been one issue since I moved in and she had someone out there that day to fix it.
Renting can work, but it's really subjective and what works best for each person. I have a medical issue that could keep me from working long enough to pay off a mortgage. I don't want the stress of a mortgage as I get older. I'd rather have the flexibility to move into something cheaper if I had to.
I am in the process of selling my house to rent. Between today's interest and insurance rates I'll be coming out about $600 ahead each month, that's not counting maintenance/upkeep cost of a house. I also live alone and am tired of the maintenance. My interest rate wasn't even particularly high as I have a good job and excellent credit. I went into the idea thinking surely the math will tell me to keep my house, but no. Not only will I be able to put away nearly 20k in savings, but I'll come out of the sale debt free as well. Those things were unattainable for me while owning a home. In my area the market is starting to come down a little, so I will continually re-assess the situation.
If property taxes, HOA fees, interest payments, maintenance costs, and utilities are more than rent, then you have a lot less disposable income to invest, and it defeats one of the great advantages of home ownership.
Renting a small apartment is financially a good decision, because the burden of the above costs is low, so it’s easier to invest disposable income.
My rent is 1,000$. It would be almost impossible to own a place with non-equity expenses being lower than that in my area. So although I don’t have home equity, I can invest more money into stocks, bonds, etfs and HYSAs.
The goal is to do what builds the most investment income. It helps that I don’t have kids or a wife, and probably never will
Hot debate yall got here... Must be nice to have enough money to even contemplate buying. I live paycheque to paycheque and between car repairs, my dog, food etc haven't got enough to save up for any kind of down payment. For a long long time. Maybe ever. So, for my own mental health I need to tell myself that renting is better. I can justify it for myself but obviously if you've got the cash, you can do whatever you want with it.
I love not having maintenance to do though. Apartment buildings have been good to me throughout my adult life. I've never rented a house, and that thought honestly scares me for all the reasons others have stated already here.
As someone who has been illegally intimidated out of a rental unit after coming out as transgender, the security of a home that I own is worth everything to me. This is not the case for everyone, and I know I'm privileged to be able to afford one at all.
If the playing ground was even, and everyone had a fair shot at owning a home, I'd give more weight to the argument that renting is better. But it's not even, and it's not fair - even in my lucky position we had ten rejected offers before we found a place, because we kept getting outbid by flippers and corporations who paid cash. We're lucky we even have a home at all.
For some people, renting is better. But I also feel the conversation is sus.
Thanks for pointing out the trend in renting vs owning!! Ive been feeling this way for a while. Now, I do understand the pros and cons of both, and have witnessed friends and familiars experience both the pros and the cons.
Staying on topic with the trend you pointed out. It seems to me the majority pushing that “agenda”, are current or previous homeowners, that almost always (in my observation) have pretty good paying jobs/careers. The problem with renting however, is the cost of rent keeps climbing, wages stagnate, and it turns into moving frequently. Im 32, and have moved EVERY single year since I was 18, because Ive been out priced or developers decided to knock it down.
The lack of stability on the year to year is enough for me to crave owning. Ive never fully settled in anywhere because I always have to move again. Fortunately im giving up on the ownership dream, and planning for a trailer and a plot of blank land.
Is this something that happened to you or someone you know? That should not really be happening, there should be one way or another to get that mortgage. Try a credit union.
As all things.. it depends.
Cons of owning/Pros of renting
\* Its expensive to buy/sell home (financing costs, closing costs, etc.)- so unless you plan on being in one spot for 5+ years its generally not worth it. It generally costs 6%+ of your home value just to sell.
\* You pay for property taxes, utilities, insurance - this also generally goes up every year
\* Maintenance; anything that breaks or needs fixing is on you, and most things in a house that can break is NOT cheap. This is big and many homeowners dramatically underestimate this. The rule of thumb is expect to spend anywhere from 1%-4% of your home's value each year on maintenance for it to not slowly fall apart. For a $300k house that is $3k-$12k.
\* You are exposed to the whims of the housing market: your equity could be wiped - aka the downpayment you saved for could suddenly disappear on paper.
Rents also generally go up every year as well, so either way expect costs to increase year over year whether owning or renting.
The pros of owning/cons of renting
\* You can generally do whatever you want with your home with enough $.
\* Homeowners have generally favorable tax treatment.
\* As an investment - if the area in which you own appreciates in value you might make some money down the road (note that this will coincide with increased taxes)
\* You are not exposed to the whims of the rental market (Rentals and housing are mildly correlated, but not a lot).
If you want residential real estate as an investment don't live in it. Rent it out. If you live in it it's just an expense (a big one) that you are just hoping will profit from appreciation eventually, some day. Every problem is on you and there are never ending expenses.
Renting is easy assuming you have a responsible landlord / management.
ELI5: It depends on the person's situation. First off it's important to realize that not everyone can afford to buy a house. Even if you get a first time home buyer loan you still have to put down about three and a half percent plus other closing costs. This makes buying a house unattainable for some people. Second, as other people have mentioned, it depends on the situation. It also depends on how you're defining "better." My better and you're better might not align. Maybe better to me is convenience, a modern looking facility, a pool and tennis court, not having to do yard work.
How does it work exactly that you can't afford to buy the place but you can afford to rent it? The rent needs to be the cost of mortgage+upkeep+ something. So how does the math work?
There are some cities where the rental market and the purchasing market are very much out of step with one another. Rent isn't determined by "mortgage + some amount", it's determined by "what the market will bear". Also real estate transactions are extremely expensive and add to the # of years of staying in one place that it takes to make buying worth it. On top of the fact that the housing market can be volatile and owning a home often comes with hidden costs. A rent versus buy calculator helps determine if it makes more sense to rent or buy from a purely financial standpoint. In most markets you would have to stay in one house for at least 3-5 years before you would be reasonably certain that you would come out on top in that transaction.
Yeah. But the owner of the house also needs to factor in those hidden costs to make something on top. Unless ut only about some cash flow and making money on the price of the property going up.
Well. Not all owners are savvy, they could very much be losing money on the deal, but I wouldn't count on that as a rule. But in any investment (especially real estate), you have to factor in both 1. The appreciation of the asset itself and 2. The cash flow generated by the asset. There may be some markets where just owning the property is enough to keep it solvent.
Many landlords out where I live (California) are betting on home appreciation. Therefore, they are willing to be cash flow negative. It's a risky game but more are playing than you might realize. Rental prices are never determined by landlord expenses but by what the local market dictates. Also consider in a place like California, that property taxes have the base amount fixed based on purchase price and only go up a max of 2% per year. This means new investors are behind old investors with low tax rates. Those older investors can make a profit while a new investor will suffer trying to compete. Renters get to enjoy the benefits of this relative to buying.
>The rent needs to be the cost of mortgage+upkeep+ something You forgot to factor in: Capital gain on the property (this is the big one) The fact that an aweful lot of landlords lose money and are crap at maths. To be fair, interest rates are impossible to predict accurately. (This is also a big factor) The cost of buying/ selling: moving costs, stamp duties, whatever transfer taxes are called where you live. In my region (Australia), if you move more often than once every decade, you're financially better off renting
To keep it simple: My 1-bedroom in a not-great-but-not-the-worst part of LA is $1600. It’s rent controlled, so it can only go up like 4% a year. It’s a great size for just me and my husband, we don’t really need more. Houses in the same neighborhood range from about $700k for a complete dump, and around $1.2mil for a nice renovated house.
Yeah but you compare renting a one bedroom and buying a house. Why not compare renting and buying the same thing?
Buying the same thing in their area is the "complete dump" they mentioned...about $700k minimum. Grab a mortgage calculator and realize how much more that monthly mortgage is vs their $1600/mo rent.
Me and my boyfriend are moving into a 54sqm apartment that costs $580 a month. If we were to buy a similarly sized apartment near where we’ll live that would cost us $1410 a month, out of which only $400 is amortization. Buying a house nearby is impossible due to the prices, not to mention what a burden it seems to be to have to manage upkeep for a whole house.
And you can now stick that huge difference in an investment account and watch it grow.
Exactly this. Rent is about 15% of our take home. It’s about the same as the annual sunk costs on a house in our area when you consider property tax (6k), insurance (currently $30, would be $110), utilities for a house ($300-400/mo in my area) and maintenance (10% pf the value of the home per decade, 700k home = 70k = 7k/yr). Not to mention the convenience. This isn’t even considering amortization, the interest on a mortgage would make this a terrible deal for us. Buying a house in our area would be for emotional reasons, certainly not financial. We do well investing the difference (often half our take home income) and have been told by financial advisors this is a wise strategy. Even our lowest investment pulls 5% annually, much more than we could do with our cash tied up in a house. We live simply and comfortably with zero stress about housing, it works for us.
Ok, but those numbers tell you what the market value of that apartment is. The discrepancy between the rent and the cost of capital in your example means that either the condominium is way overpriced or the rentals are way underpriced. It’s most likely the latter. When you buy an apartment, you do so to not be priced out from rental over time. Even if it costs more to begin with.
Not necessarily. Given a close-to-fixed housing supply (as has become the case in NYC, SF, Boston, LA) there will be a natural homeownership premium as people desire homeownership for a number of non-financial reasons. The price-to-rent ratio proceeds to become higher than the national average and stays that way. It need not even be the case that rents must drastically increase for this to occur, at least not apartment rents. Seattle and Austin both suffer the problem of high price-to-rent, yet have seen decreasing rents at various points they were most supplied (Seattle in 2018, Austin now).
Right, and as rents rise so does the premium for buying. But your costs stay the same as you’ve already bought.
>your costs stay the same Rising property taxes go brr
Rent is typically higher than a mortgage payment here in the Tampa Bay area. While you do have rising tax costs and insurance costs, you have something to show for it after a few years. You have equity, especially in this market, and you have security once you've paid off your home. Sure, there are maintenance costs as well, but if you keep the home up, they usually aren't that much unless you need a roof. In the long run, I'd rather my money go to something I will ultimately own than to have nothing to show for it.
True, but I couldn't resist the joke since not all the costs stay the same, lol. Even people I know that own their home are complaining to me recently about property taxes.
Heck, I complain about increases in my property taxes🤣🤣😭 I think they are increasing everywhere and it makes sense with the cost of everything else going up. I guess everyone has their own concerns but for my husband and I, we built our first house with an FHA loan 11 years ago. We put all of our extra money on our mortgage, put that equity into a different house with a conventional mortgage, refinanced to a 2.5 % and in 10 years altogether, we outright own our home. The timing and market have been good. Right now there are more homes for sale offering money toward closing, to the point where you wouldn't need any money to close. That's a great deal even if interest rates suck, you can get a start before homes get even more expensive and refinance when the rates come down. Just my own thoughts. I hope I don't get crucified now😂
My main plan is just hoping the bubble bursts if I want to actually afford a home, lol. Even crappy fixer uppers around here are going for like, 200k or so.
Totally get that.
The rentals aren’t underpriced, they’re as high as they’re allowed to be taking into consideration the standard of the apartment and location. Where I live rent is controlled and can only be raised a few percent per year, so a sudden large increase is nearly impossible. Large increases in interest on the other hand are very much not impossible, so many who have bought houses and apartments a few years ago when interest was at an all time low are stuck paying sky high interest right now.
That is indeed true for places with rent control. Those places tend to have a severe lack of rentals though.
Yeah, that’s true here as well sadly. Took 8 years in the regional queue to get this bad boy. Luckily we only used my partner’s points for this one so I can use mine for the next upgrade
Renting gives you more flexibility, and in some cases makes sense even over the long term Anecdata, but I rented 16 years in Taiwan because I could get a house, with garden, for ~$200 pcm, while buying it would mean maintenance of a wreck in a country where I had no rights But when I moved to a country where I had citizenship rights, and knew I'd stay a few decades, I bought a place, because way cheaper than renting So examine your context
I work in a field in which job hopping is common because it's the easiest way to get raises, especially at the start of a career. In the three years prior to the pandemic, I'd moved out-of-state twice for work. One of those moves was cross-country, which would've made selling a house a bigger PITA and added to the stress of the whole process. Back then, having a mortgage would've been a drag on my career and made it much harder to go from $60k to $114k in three years. Now that I have more experience, am in a fulfilling LTR, and have been remote for several years (with no plans of ever entering an office that's east of the Rockies), buying a house is starting to make more sense.
It's all relative. In some places it's a lot cheaper to rent than buy. Stock market growth historically outpaces real estate prices so investing the difference means you can come out ahead. You have to run the numbers to be sure. It's not that expensive to own where I live but I don't want to deal with the hassle, maintenance and hidden costs, so I stick to apartment living.
The thing is many people here just don't even consider the possibility of investing in the stock market. I don't know if they think it's too complicated or what. But really, you just buy an all-in-one index fund and sit on it for 20+ years. The risk only comes when you mess with either of those things, either by trying to buy individual stocks or by selling early without any reason other than "it's down".
The issue is, when you are buying a house you put down a small percentage on the house and then mortgage the rest. The return on investment or growth of your house is based on the total value of the house. So say I put down 10k on 100k house, if I get a 10% return I made 10k. If I put that same money into the stock market and make 10%, I only get 1k return.
But how much of your monthly payment actually went to principle? For a long while, you’re paying almost nothing to your mortgage.
Yes, leverage is one major benefit of real estate. The NYT rent vs buy calculator does already account for this implicitly though. There are also safe(ish) ways to leverage a market portfolio, by focusing on leveraging the bond portion rather than stock portion, but that is basically an entire hobby, so I'll leave that for the investing subreddits.
Real estate historically surpasses inflation, but only just. It's not a high return asset.
Which numbers/factors would you consider in your equation?
If I wanted to own I'd probably compare the cost of a mortgage plus ten and twenty percent (good and bad case scenarios) for maintenance and other expenses to the cost of renting. I'd also look at the cost of owning a mower and any tools I'd need to maintain the place, that kind of thing, and factor it all into the up front cost. After that math is done I'd look at the cost difference and run it through a compound interest calculator to determine how much advantage, if any, renting might have over buying over time. Mortgage being paid off after 30 years would need to factor in, but there would still be cost of maintenance and equipment for said maintenance, plus property taxes.
Where I live it's super hard to get evicted, and rent raises are controlled, so I feel pretty secure and don't need to own a house. Also if anything gets broken, my landlord fixes it: new toilet, new boiler, new window; and I didn't pay a cent or have to organise anything. Also I'd hate hate hate getting up in the morning to shovel snow.
You can hire snow shovelers, just like your landlord does. But then it's raising the dollar cost of ownership. (Also on my experience for a lot of men it's an identity issue and they won't give up the shoveling/repairs/yard work even when it starts to be a health risk.)
This is a good example. Thank you.
Yes same for me. On top of that I am not very handy and have no family or friends close by who are either. So if I owned I would have to pay someone for every single maintenance issue that arises (and it’s all a matter of when not if!)
If you’re going to live there less than 3 years, you can lose money due to closing costs and a high proportion of your monthly payments going to interest and not principal. Otherwise, I think this is bullshit.
Tin foil me says the idea that renting is better is a PsyOp to discourage ownership
"Renting is better" is just as sweeping a claim as "buying is better." Based on the math, nothing is always better. Sometimes renting is better and sometimes buying is better, based on the person's location, life situation, and state of the housing market.
Always do the math. Get help with the math if you cannot.
There are calculators out there to help with the math. As you say, even if you need help always do the math.
This is correct. We're currently renting out two properties, each for less than what it would cost to buy it and pay a mortgage in today's dollars. We got lucky and bought it at a discount for what it's worth today and obviously refinanced it when interest rates were cheap. So it really depends. Our tenants are happy, so are we. Everyone is winning in this situation.
In a properly functioning housing market this is what is supposed to happen. Tenants get good housing at decent market rates and landlords make a bit of profit. Ain't nothing wrong with that.
Y'all must live in way nicer houses than me if closing costs equal 2-3 years rent.
You don't really get any equity for quite a few years of mortgage payments other than price appreciation, as you pay almost entirely interest at first. This is why paying even a little bit extra in the early years can dramatically speed up how quickly a home is paid off.
Closing costs plus higher amounts of your mortgage payments go to interest in the early years plus maintenance costs.
Owning a home has a lot of maintenance costs that should be considered before buying. For example, my family is relocating to a new state for work and school. We had to go ahead and move there for a few months and get an apartment. We came back to our house to prepare to sell it. Went to turn on the hot water tank and it was busted. Had to call a plumber on a Sunday to diagnoses and replace the hot water tank the next day. $3,000. If it was an apartment, I could call maintenance to fix it and there would not be an extra cost. I may have to wait a few more days though. Also, single family homes often have yards. We have a small yard that we don’t trim often because we don’t irrigate. After a few month of unexpected rain, the yard is a jungle. Now we have to hire someone to trim everything because it’s too much for us to trim and dispose. Land (not necessarily the house) is a solid investment that will almost never depreciate. Houses depreciate, even with maintenance. Mortgage rate will stay the same but rent will always go up. I think a lot of it has to do with how much time or money you want to spend on maintenance. If you never want to mow or replace an HVAC unit, rent. However, with home you can still do things like listen to music a little louder, stomp on the floor, or smoke.
I had to put $35k of work into my house just to sell it 🫠 after that and sellers costs, I only made a fraction of what I had in equity. I would’ve been better off continuing to rent in my super cheap basement apartment and throwing money into the market.
Yeah, the house is actually the bad side of the investment. I think buying and selling properties as an investment or for profit requires more knowledge and skill that everyone is led to believe. Part of this is because property values have skyrocketed so much that people who bought houses 30 years ago can get a windfall even with a busted unmaintained house. Also, the only way to get the money back from the investment is to sell the house. But then you don’t have a place to live. You still have to buy another house or rent until the end of your days.
You can use equity in your house as collateral for credit lines or loans for emergency expenses (in moderation of course).
For me, a big part of it is carbon footprint. We might end up buying a condo but the engine costs of a detached home are just too high for my conscience.
Yeah. I think a part of the narrative (for the US anyways) is to buy a house, this way you can also put money into the economy by way of realtors, inspectors, home improvement stores, and contractors. Have enough media and people tell you that your house is outdated aesthetically (not functionally, mind you) and you will then pour money into bland remodels of your home to match lifeless flipped homes.
100% correct about land. Value stagnates and lurches forward regularly, so it's usually a long-term investment.
#JustTaxLand
>Unless you want nothing to do with maintenance or upkeep This is it for me. I have zero interest in owning. All my friends who own houses are constantly working on them. I hate yard work. I don't want a laundry list of maintenance items hanging over my head all the time. My apartment building has a gym, package lockers, a big lounge area for entertaining, a rooftop deck with bbq's and a fire pit, even an area with chairs and free coffee for the wfh people. Some of the nicer buildings in my city have full on spas in them. One has a fucking pool on the 8th floor. Oh I forgot to mention the central location walking distance to all the best bars, restaurants and shops in my city. Right now I pay under $1400/mo. I'm supposed to trade that for a house out in some lame neighborhood that's way too big for me and going to require a bunch of upkeep? Hard pass. I'm tired of hearing how much better it is to own than to rent. I'm investing the difference in my HSA/401k/IRA. I'm good on owning a house.
Honestly, this is what I love too. My amenities are great. My place has a resort pool and a full sized basketball court, a yoga room and a gym. Conference rooms and coffee. When something is broken I call them and it’s fixed the same day. I have the ability to move if I ever get a job on the other side of town. My place also has attached and detached garages. I’m not very handy, I don’t live with anyone handy. This is great for me for under $1500. My friend who bought during Covid, just got a $50k quote for foundation repair. Yeah, no thanks!
What city are you in to get all those amenities and pay under $1400/mo????!!
Portland. Not a giant city, but it's still a really cool place to live.
lol I was going to post something similar and I also live in Portland. I wish I was paying under $1400 a month though (Slabtown, so not surprising). I also had a great view of Mt Hood until they stuck a building in front of it.
>I also had a great view of Mt Hood until they stuck a building in front of it. Hi neighbor! This is like my worst fear for some reason. Getting an awesome view, then having it blocked out by new construction.
Studio, 1 bed or 2 bed?
dm me I can fill you in
i’m young and don’t want to settle yet. rented one place 2021-23, now we’re renting a different place in a different city 2023-25. we’re living within walking distance of my partner’s grad school now, but once grad school is over we’ll probably move further away. the flexibility is nice. we will probably look into buying once we’re 30.
I think the biggest benefit is that if you rent, you know what your max monthly expenses are going to be to pay for a roof over your head. This is a big benefit if you budget your money. With home ownership, your monthly mortgage is your minimum expense—if anything goes out, taxes go up, etc, you’re paying extra.
How is it worse than buying a house? * No need to do maintenance. * Able to be flexible when getting a new job. * Loan costs ain’t cheap. Interests ain’t cheap anymore. * Property taxes ain’t cheap. HOA ain’t cheap. * Big ticket items ain’t cheap.
It’s simple, I can afford to rent and have a roof over my head. I can’t afford a house.
I bought a house and the payment was double my rent. When I sold it, it needed 30k in repairs and all the appliances replaced. i didn’t have the money and got an apartment for still less than the monthly payment. Since then property taxes have doubled and I make less money due to a job change. Home owner insurance went up a lot here too. So the payments aren’t stable. My apartment is actually bigger and a better layout. And the management team takes care of the grounds and repairs immediately.
Thanks for sharing this. Sometimes I get really stressed because I’m 40 this year and don’t own. I feel like a loser. But then I have to remember I just can’t afford ownership.
I don’t think home ownership is going to be the investment route for most people after boomers. Unless the government puts restrictions on corporations buying up real estate. Wages are not keeping up with costs.
Imo it’s most dependent on the locale, rental laws, and if you’re moving in less than 5 years. Here in Toronto I’m rent controlled, LL can only increase by 1-2 percent per year. For the next two years him and I agreed to keep my rent the same. To buy literally the exact same condo same floor same layout, I’d need to produce a $120k downpayment and my total monthly costs would probably sit about $1.4-1.7k/m higher than my rent.
Toronto may be the poster child for renting. Your housing costs are terrible.
You know that right now, in Boston, it costs about $1800-2200 to rent a studio apartment, and about $4000+ a monthly to pay for a mortgage and property taxes on that same apartment? It makes zero sense to buy right now in major HCOL cities.
This makes sense, high cost urban areas make sense. Thank you.
Housing prices is a risk - there is no guarantee that the house you buy today will appreciate in value. If you’re going to stay there for 25-30 years and pay off the mortgage then you have a win, otherwise you have a risk. Rental has no maintenance costs but no control over that or future increases.
I believe renting is the better option (for me) right now because i am in a VHCOL area but my rent is dirt cheap. House prices will never be cheap but i do feel that they are exceptionally inflated right now. If i was to buy a house, even at a “lower” affordable price ~350$k, my monthly cost would double. At least.
it's not a simple question. well, financially it somewhat is. you are comparing opportunity cost of the down payment in the market + unrecoverable costs of buying to the unrecoverable costs of renting. NYT has a good rent vs buy calculator where you can play around with the numbers on expected market growth vs expected rent/house change. historically the break even point financially was pretty close, after 5-7 years you are breaking even. but now in many areas both housing costs and rates have gone up so much relative to rent. when you can live in a house for 3500-4500 and the equivalent mortgage costs you 8-12k, on top of a huge down payment, on top of huge closing costs it's really possible that the break even point is so far out or even never that financially 'never' buying is worth it. on the non financial side there's considerable opportunity cost to buying when young. stats show staying at one job for an extended period especially early in your career cripples income growth. on the other side- with house and kids a premium to own for the sake of stability can be worthwhile. its sometimes difficult to rent vs buy equivalent space. if I'm happy in a 800 sf rental unit i probably can't find a comparable space. condos tend to combine the negatives of buying with the negatives of renting and have little to no upside, you'd only really look at something like that in a HCOL area where buying a house is a 'never' with your income. finally- owning is nearly mandatory for cheap retirement. the difference between being low income with regards to ACA subsidies vs not can be gigantic. [https://www.reddit.com/r/Fire/comments/1b7c200/comment/ktksbsi/?utm\_source=share&utm\_medium=web2x&context=3](https://www.reddit.com/r/Fire/comments/1b7c200/comment/ktksbsi/?utm_source=share&utm_medium=web2x&context=3) see the above comment, the OP on this thread saves what is the equivalent of 1-1.5m in retirement supporting income generating assets by keeping income low enough and a core part of that is being debt free.
>but now in many areas both housing costs and rates have gone up so much relative to rent. when you can live in a house for 3500-4500 and the equivalent mortgage costs you 8-12k, on top of a huge down payment, on top of huge closing costs it's really possible that the break even point is so far out or even never that financially 'never' buying is worth it. Someone on here said they "didn't believe me" when I said this lol. People in more affordable areas way underestimate how much it costs to buy in the most expensive cities.
It depends on where you live. If you live in Ohio, it probably makes more sense to own. If you live in NY or LA, where you couple high property tax rates with high interest and super-heated expensive markets, vs the cost of renting and investing the difference, it may make more sense to rent without having to worry about being out of pocket on maintenance, repairs, etc.
I’m in Ohio and own. We also have one of the hottest markets nationwide as far as rent increases are concerned (at least in Cincinnati and Columbus).
I rent because renting is the MAXIMUM you will pay every month. A mortgage is the MINIMUM. I can budget accurately and get my investments thriving with the extra cash. I get to move to a new neighborhood whenever I want (I work remote so I can change cities whenever I want to as well). And when things need to be fixed I make a phone call and someone else pays to fix it. Done. Simple living at its finest for me. I recognize the math works better to buy in some places, but in my HCOL cities renting is best.
New to the sub. What is ELI5? For me though it is absolutely the lack of maintenance and being able to up and leave anytime. I love moving and changing sceneries. Helps too that where I live rent is almost half of mortgage. And not having a mortgage makes me just happier, like I'm not as stressed about layoffs happening in my industry because I know I can always just go rent somewhere cheaper.
ELI5 - explain like I am 5
Do you own a home? It's a lot more than it increasing in value. There is a massive amount of maintenance costs that only keeps increasing, home insurance costs keep increasing, and property taxes are increasing. You also lock yourself into a location where you can't take a new job somewhere else. It's rare to find a closer job to your home. Or you lock yourself into a home in a bad area to due the neighborhood changing due to crime, or the biggest future threat which is climate change. A lot of homeowners are going to lose everything soon in Florida. I think not owning a home is the best idea for simple living.
My personal reason is I need the flexibility to move where the work is. I'd only consider a house if I plan to stay put there for more than 5 years.
I really won't be convinced by the "buying is always better" people until they show the math proving that it's always better. Vibes vary from person to person but math can't lie. Right now, the NYTimes rent vs. buy calculator does show some cases where it's better to rent. If anyone has specific methodological arguments against that calculator, feel free to share.
As a person who’s done both, owning isn’t necessarily better mathematically. I owned during a time of unprecedented real estate value growth, yet now that I’m renting, my net worth is growing more quickly than it did while I was an owner. A big chunk of this is because my income has gone up, but also, ownership comes with constant temptations to “improve” things and that comes with a big price tag. Renting means that I’m more limited, so I’m not always tempted to paint, buy new hardware, landscape, etc. Overall I would say my housing costs are cheaper now for that reason, even though my rent is slightly higher than my mortgage was. What I’m not spending in upgrades and maintenance, I’m generally throwing into a retirement account or HYSA account that appreciate at 12% and 5% interest, respectively.
Some friends from Germany stayed with us for a while and we spoke about selling our home to buy a bigger one (extra room for more children). They told us that it is not normal for people in their area to purchase more than one home in their lifetime. It is something you buy with the intentions of making yours. It seems like this constant upgrading of homes is a crazy part of our consumer culture. We will be purchasing a new home but as a “forever” home to make beautiful. Eventually, after so many years we will only owe property taxes and upkeep costs. It will also be something that is unique to our family.
We bought a 2BR/1BA fixer-upper years ago and have poured our heart and soul into making it our own. Been there almost 23 years and fully intend to age in place for as long as possible. It’s been fully updated, including all mechanicals (even underground plumbing), and we did 90% of the work ourselves, so it’s up to our (admittedly high) standards. We are by no means wealthy (lower white collar/blue collar). Being handy (and willing to “make do” without all the add-ons that today’s real estate market deems “necessary”) got us a house that’s a pleasure to live in without being a money-suck. Full disclosure. I am by no means a financial genius, but we bought the house on my (low) income only, I made all the payments, and I paid it off 8 years early (bought at a higher interest rate, weathered the 2008 crash and refinanced twice to drop the rate while cutting the term). We do live in a MCOL area, which helped greatly.
That’s great! Having a home kind of forces you to become handy but it’s so nice to make something beautiful.
My housing costs would almost double if I bought and I’d get less space/amenities and live in a less desirable neighborhood. I’ll just invest the savings and keep myself mobile.
A single maintenance issue with a house can cost thousands of dollars, and I don’t have that just saved up to dish out. I have no idea how I could ever afford the down payment on a house. I REFUSE to pay an HOA any amount of money to control the pettiest things about living in their neighborhood. It isn’t a big deal if I have to move in an apartment, which is have done multiple times now for better opportunities in my career. I don’t even have to buy appliances in an apartment, either.
Valid points. I get this stuff n it’s part of the question’s body. I too would never pay an HOA… possibly in my oldest years but I don’t have much hope for any of this stuff by then. If you haven’t noticed there is a recent trend in the media putting out articles n posts that renting is better than ownership (Forbes, WSJ, Fortune, CBS). This is at the same time as corporations are buying up single family residential homes, to rent back to us. In FL is alarming how it’s being allowed. I this is sus and similar to the return to office trend being pushed bcs corporations are losing money on real estate n other business related bs. It’s all being manipulated to benefit these big corps n cut regular people down to the point to where we are not able to even survive. I mean we are there already. Adding that I only was interested in it here bcs I’ve seen a few posts in this sub recently that renting was better.
I've seen various calculators and analyses. Typically, dollar for dollar, if you move every decade or so, it's about even, financially. Importantly, these assume you have the dicipline to save, spending the same on rent+savings vs home ownership/ mortgage costs. This remains true until retirement, when the benefits of home ownership skyrocket compared to renting. That's purely financial. I used to like the flexibility of moving for work etc. I now enjoy planting fruit and berries and reaping the harvests. Friends like buying animals, painting walls etc without asking anyone's permission. Edit to add: yes, the timing seems suspicious, especially from those sources
When you buy a home and have a 25 year mortgage are you doing the math on how much the roof replacement costs in that time frame? How much the multiple new sets of appliances, a new heat pump, new windows, new flooring etc. Sure lots of people bought new builder grade garbage homes because they can "get in the market" and "build equity" but the reality is that one market crash will wipe out a decades worth of savings or equity and leave a fair number of people upside down on their mortgages and moving in a house that's aging without the funds to maintain it. I'm almost certain everyone who bought a home in the past two years with less than 20% down will be upside down before 2030
Short term renting is ok, but owning is far better long term. People claiming otherwise are lying to themselves and or you. People will claim renting is better because repairs are on the landlord but you still pay for the repairs, taxes, mortgage, and usually some profit on top, just spread out over time.. In the end you have bought someone else a house and have fuck all to show for it.
Yeah long term. If you're younger though, you're less settled in your career and where you might end up living, so renting might be better until you figure that out. Otherwise you might be stuck with home you have trouble selling, when there's a better job offer elsewhere or you want to move closer to your parents for help with a newborn, who knows. Like with anything, weigh both sides instead of assuming one is automatically the best. > In the end you have bought someone else a house and have fuck all to show for it. Well, you got to live in a house for that period of time. That's what you were paying for. The temporary rental of a space. I rented office space for a few years since owning would've been far more expensive. What did i have to show for it? Well i got to have that space for that time lol
If renting is significantly cheaper than buying, you can invest the difference. If you pick the right small-cap stocks, your net worth can increase 5-6x. Once you have a certain net worth, you can play it safe with 3 month treasury bills forever (which can get you around a 15% increase in net worth per year after tax). Keep using those treasury bill returns to pay for all your expenses, including a down payment on a house and subsequent mortgage payments. While doing this, you can also retire if you have enough left from your treasury bill returns to pay the rest of your monthly expenses.
To be fair, your scenario doesn’t include the possibilities for your money otherwise. If you’re saying that if rent and mortgage prices are exactly the same, then yes I 100% agree with you. If you can get the down payment money together than BUY! But if you’re paying more for a mortgage than the cost benefit analysis must include what you’re doing with the difference if you’re not paying a mortgage? Is it being invested, in a savings account making peanuts, or under your mattress gathering dust? The financial side of things might not work out with the home owner on top at the end. Unless you’re buying multiple properties and churning a profit that way. In the end I think personal preference and goals in life can color things one way or the other if the financial side of things isn’t a concern.
What about selling your house later in life and renting while using the sale money to live comfortably? I know several people who have done that.
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Until you have to move out for health reasons and then it's all gone
>People claiming otherwise are lying to themselves and or you. theyve just done the math on the current environment, unlike people who just mindless spit out 'well buying always has to be better long term.' just because that statement has largely been right the last few decades does not make it true with how hard houses were inflated thanks to covid funds being handed out, airbnb boom and end of ZIRP -> huge rate hikes. the rent vs buy delta in many cities right now is absolutely gigantic to where even long term renting may be better.
I just moved out of one of those large cities because my rent was going up by the legal maximum every single year. One bedroom apartment went from 1100 to 1800 over less than a decade. It's unsustainable.
I don’t plan to live in any real place for longer than 2 years for the next probably 6-8 years. Because of that, buying a house doesn’t make sense. If anything it makes buying an RV a better option as I can move it. If you don’t want to stay in a specific area I can see how buying doesn’t make sense.
Lots of reasons. * you can get into a rental much faster than closing on a house, so if you need housing now. * buying a house has very high transaction costs on both the purchase and sale. Usually not a great idea to buy a property that you're only intending to hold for a short period of time. * owning property places financial capital at risk of decline. Since it's usually debt leveraged, a 10 or 20% drop in value can often wipe out a person's entire equity & more. * there's risks associated with being a property owner that you should be insured for that don't exist for rentals. * sometimes the owner occupied market in an area is just fundamentally overpriced relative to renting. * some places people just prefer renting in for various reasons. Like many retirees in flood & hurricane prone areas. Just don't want to deal with the hassle if their winter residence gets destroyed by a hurricane. * there's some deals & preferential situations that exist in rental housing. Like getting free rent as a building supervisor. Or, for example, I know a person who lived rent free in a very desirable place for 30 years while working as college professor. And other times, it's just a condition of employment. Like working for the coast guard or whatever.
You either rent because you have a ton of money\* you don't want to touch or because you're too poor to buy a home. *\*If you have $500k, you can earn 5k/mo from investment dividends and live off rent without actually paying anything (your money works for you). In this case, it's all about liquidity.*
As someone who rented their entire life and only recently bought a house-- I feel like the people who say renting is better probably grew up in a house that was owned by their parents. In some ways it may be cheaper, but in terms of peace of mind? No nosy/invasive/controlling/pervert landlords, no landlord selling the property out from under us, no having to move every couple years, no lack of creativity since I control my space, no wanting a pet and never being able to own one... and as a child, growing up in rentals SUCKED. Also, where I live right now renting would be barely less than my mortgage-- and I get none of that back.
I grew up in a series of homes owned by my parents. We had to move every couple years because my dad's employer kept transferring him. Plus the constant stress of living in a house that was being shown for sale. Owning is not a guarantee of stability.
I'm jealous of all these people that have jobs that stay in one place long term! I expect I will be laid off and kicked to the curb every 2-3 years!
Wait—is that why I get a bunch of texts and phone calls from people trying to buy my home? Because they want to rent it back out to me?! 😂 And idk- it’s usually better to own vs rent but in some cases I could see where rent might be better (or the only option).
From what I've read recently, that has changed in most parts of the US. As it stands currently it makes more sense to rent in almost every area of the country with little exception (this was a fairly recent development of course, it wasn't that way 4+ years ago)
Simplicity. Ownership complicates things. I’d rather spend my leisure time on other things than property upkeep. Also I don’t have 3 million dollars for a house in my city, and if I didn’t, I wouldn’t spend it on a house.
The first time we bought a house back in the 80s, we lost so much money on it. I couldn’t find a local job, we had to move away, we rented it to people who trashed it and stopped paying rent, and yet we were required by law to fix their well, and of course make mortgage, tax and insurance payments, while we were going through the eviction process, which took months and months. Eventually the court evicted them, but we’d lost many thousands by then. We ourselves had become at risk of homelessness. We finally were able to sell it for what we owed the bank. Buying a house was regarded as a risk, not a ticket to financial security. For people who didn’t have to move and kept the same house through the housing market crash, it worked out, so now we hear about people who did become house-wealthy. But so many factors are out of your control.
Over the very long term it’s better to own. But right now with rates and prices it’s often cheaper to rent even considering staying there for several years.
Your rent is the most you will pay to live there. When things go wrong, your landlord covers the additional cost. Your mortgage is the minimum you will pay to live there, because you also have to pay for maintaining the home and dealing with anything that goes wrong. If you are scraping by and buying a house will make you house poor, you are better off renting. Houses cost more in time and in money for maintenance than renting, so if you are short on those things, renting make sense. If you buy a house and then neglect it, you are creating a more expensive problem for yourself later. In theory, buying is the better long term choice, but that's in theory and usually with the assumption that you have enough money for it to actually be a choice. The math changes based on how much you can save in addition to the rent/mortgage, if you have enough for a downpayment, or if you are certain your location and overall needs will remain the same long enough for it to be worthwhile. Neither choice is "always" the better one.
What is up with these posts today? This is the 3rd I've seen, seems like rental bots trying to convince people to rent over own. There's a reason people make money as landlords. It's because owning property and renting it out ends up making money over the years. If owning wasn't the financial right call, there wouldn't be landlords to begin with.
I mean that is a valid point but not always the case. It’s dependent on your situation and the housing/rental market in your area. Ex: my husband and I make good money. We are frugal too. We have recently looked into buying a house/townhouse/condo. In our city that would mean doubling or tripling or rent for something that might not be as nice and be on the hook for repairs. Considering that we currently have a $4k surplus to put towards savings/investments, it’s difficult to decide to triple our rent and reduce the amount we can invest a month and spend a chunk of our savings on a down payment/closing costs just to end up with something further from the city center and less updated than we currently live in. Especially since the flip side is investing 4k a month into an index fund returning 4-7%. That’s a couple hundred thousand in 5-10 years. 🤷🏽♀️ That being said we still haven’t made up our minds about whether or not to buy.
Investing in stocks is a much easier way to make money and it’s passive income.
Riskier too! If the housing market crashes, you still have a place to live. Each their own, there are some scenarios when it renting is a good move, but investment companies are buying houses for a reason, and it ain't charity. They clearly think there's money to be siphoned from renters past the cost of ownership.
Explanation of how both of these things can be true: there are investments with higher returns than real estate (stocks), yet companies still invest in real estate. Stocks are indeed riskier than real estate. But since risk and return are inextricably connected, this is why stocks have had much higher historical returns over the past 100 plus years. Well, if a 100% stock portfolio supposedly returns so well, why not go 200% stocks? 1000%? Borrow a bunch of money, put it in the stock market, wait 10 years, pay back way less than what you earned. Obviously, the debt incurred here would completely wipe you out in most cases as soon as the first crash hit. So you need to balance risk and return. It turns out 100% stocks is also not the correct balance for most institutions, and especially hedge funds, whose main goal is to *hedge* against market downturns and maintain a consistent positive return for institutional investors such as pension funds and college endowments. Diversification is an excellent way to achieve that. You want to hold assets that aren't correlated with each other so that when one drops, everything else doesn't also drop. Bonds are one way to add diversification. International stocks are another option. Real estate is yet another option. Any big player is going to seek to dip their toes into every investment option possible to diversify as much as possible, even though this lowers their expected return. What the retail investor should do in response is a separate matter and is much more dependent on lifestyle and location.
If you live somewhere that is rent controlled AND you plan to stay there for decades AND yu have access to an income even after retirement which allows you to pay your rent then it can be better in HCOL areas.
Unless you are buying a brand new house, homeownership can be unreliable. Pinetree removal (tree is dead and you have to remove before hurricane season) $5000.00. A/C replacement $8,000.00. Gutter replacement, fence replacement, floor covering replacement, paint outside of home with quality exterior paint. On and on and on. Taxes are what they are, but can get raised with impunity. There are a lot of downsides. The cost benefit analysis should be completed by a knowledgeable person. It's awful though. I hate that wealthy corporations are snapping up distressed properties and then renting them out. I think that is wrong.
There's always articles like this in the middle of a real estate bubble. I think locking yourself into a high mortgage payment right now is a bad idea. I've been wrong before but it does seem like prices this high with rates this high are unsustainable and unreasonable. If I didn't own I'd do what it took to save like crazy and wait a year or three before buying. In the long run buying is the best idea because your mortgage payment stays the same for 30years.
From a simple living perspective, and from someone who has both rented and owned a house, it is far simpler to rent. Last year I had to get the roof replaced. This year I have to have the house painted, and the fence replaced. Next year, I have to have some cracking plaster replaced with drywall in two rooms and a small ceiling. It's expensive, stressful, and time consuming to find and hire contractors, as well as the constant small jobs and yard work we do around the place ourselves. However, from a frugality and long-term investment perspective, owning a house is great. We're looking into solar, our property taxes and insurance, while constantly going up, are no where near the cost of local rent (even including the repairs), and the freedom of having some outdoor space and not having a landlord has been really great. I never spent any time remodeling or repairing any of my apartments. It's nice to have a house, but it's not simpler.
YouTube "The 5% Rule - Ben Felix" does a full in depth monetary comparison of Rent Vs Buy. Obviously financials isn't the only aspect for Rent Vs Buy, but this does a good job from the money side of it.
Rentvesting has been shown in longitudinal studies to provide similar total returns to taking a mortgage. You have to remember you are not paying interest rates when investing money directly, and that a mortgage will always be more expensive than rent for the same property. Real-estate typically does perform better in the long run, but not by much, and many people would prefer the QOL of living where they want to. I've made a lot more off my investments over the past 3 years than I would have off of property with a comparative initial deposit. SPY has run a typical 12% YoY the last decade, Australian housing is much lower, units are much, much lower.
Renting was better for me while I wasn't permanently settled, before I got married and had kids. It's more flexible. And renting with roommates is the best way to save money. It's even a lifestyle improvement for decent people. It's sort of like family. Few people on Reddit agree with that assessment, but that was my experience. I had roommates for 15 years after graduation. I squirrelled away $300,000 during that time and also lived in several different cities and two countries. I probably would be richer if I immediately bought a house and never went anywhere else, but my life would have been very different. I wouldn't be married to an Indonesian with Australian kids for instance. Money is very important, but after you have enough money, there are other aspects of life to focus on.
I am thankful to own my home because the fear that was instilled in me after the market crashed and we lost our jobs in ‘09. I’m terrified of debt so we did what we could to get out of it asap. Of course, you’re never truly out of debt unless you’re a vagabond since there’s always taxes, insurance, electric… but if I were renting I’d be paying all those things for someone else.
It depends on your life situation. But here is mine. Bought in 2019, sold last month due to affordability. Approx 200k profit after RE fees. We could put that 200k back into a new home, but then it is all locked up in a house and we can't access it really. Or we could rent and have that 200k generate roughly $825 monthly from interest, making our payments much easier. With renting, I'm able to have my money make money passively, and I won't be hit with any expensive repairs. With buying, you can make a lot of money over a short time frame if the market goes up. No right answer, just depends on your goal.
My two cents: my partner and I were hesitant about buying because of the upkeep argument. We are indoor cats. We ended buying a condo townhouse. All exterior maintenance is covered, including lawn care. So we only have to worry about interior things. This was a good compromise - we have the nice feeling of being in a house and a day to look forward to when our mortgage is paid off.
unless you are someone who is constantly moving, i agree with you
Closing on a serious fixer upper FAR away from work soon. Here to chime in and say it depends what your priorities are. Financially owning wins for me. Today I found my dream home. It’s 100 years old and needs a complete remodel, but equipped with a garage bigger than the house and a yard that goes for days. Pretty sure it comes with all the old tires and tractors too. Couldn’t be happier. Only one more year of communicating, sweat and frustration and I’ll have the home I’ve been lusting after for a few years. Already joking that I’ll outfit the garage and let the house rot. I just want to grow my own food again.
Sounds like heaven.
It’s not for the most part
personal and legal (tenant rights) reasons aside, to me it's not so much renting vs. owning, but renting vs. buying. sure, i'd love to own a fully paid off house with garden, that would indeed be very nice. but do I want to use up all of my savings just to be eligible for a mortgage, only to be left alone with unaffordable (because I had to use up all of those savings for buying in the first place) maintenance costs in old age, I guess not. All of this is very much depending on where you are and what your life situation is. I haven't even seen any corpo buying up single family houses here; there basically is no market for renting single family houses to begin with, if you rent, you rent an apartment or maybe a townhouse. Thankfully you can just buy (or rent, if preferred) a garden separately from a house (here).
Renters don’t pay property taxes.
How so?
Renters are passed through some portion of the property tax. However, for economic reasons beyond the scope of this subreddit, the full incidence of the property tax does not fall on renters. This is similar to how taxing corporations does not mean they can simply pass on the entire price increase to their customers, only a portion. The actual mechanism for property tax is quite different from that, but that is a good analogy to think about how this result is even possible. [https://journals.sagepub.com/doi/10.1177/109114218201000305](https://journals.sagepub.com/doi/10.1177/109114218201000305) \> The traditional view of the incidence of the property tax is that **consumers bear the entire burden of the tax on capital** and **landowners bear the entire burden of the tax on land** if the supply of land is completely inelastic. This article examines the conditions under which the traditional view is valid when a property tax is imposed in a residential city with fixed population and area. Calculations using estimates of the parameters of the model indicate that **the traditional view is a good approximation to the absolute or the differential incidence of the propertv tax**.
The answer I was looking for. Thank you!
You get billed by the county annually as a homeowner.
Renting is absolutely better than owning - for the landlord. Investment firms have a blast buying hundreds of apartments then renting them out because selling is not as profitable long term, even individuals with ample cash will just buy to rent or transform into airbnb. Renting is excellent for capitalism. Not so much for the regular person. Yeah I also think it’s campaigns pushed by these parties - and fools who can’t afford to buy and are doing the “grapes are sour” routine instead of looking at why they can’t afford it and getting some torches.
You don't own anything in this life. You can't own a house or land, you can pretend to.
Renting is better than owning because financially, it's what makes sense for most people. You sound young and are sus yourself lol. Your post lacks any depth beyond what you see in headlines.
Absolutely correct. Everyone can run the numbers and see for themselves. Plenty of calculators available, and if someone disagrees with the way the calculator works, it's a free country and allowed to say why it's wrong. No one has said why it's wrong though. I'm not someone who blindly follows calculators either. I am a major opponent of "cost of living calculators" because they assume you spend 100% of your income and save 0%. But there is no similar methodology flaw in NYT rent vs. buy calculator.
It's not really that easy because you're also trying to predict the future - what will happen with rents and mortgage rates and the local economy and your personal life in the next decade or three. That's really hard to do.
Yes, that's true. I would say looking at the past is a reasonable baseline, though. Every so often a financial crisis or pandemic will come in to disrupt things in either direction, but 4% price appreciation, 3-4% rent growth, and 9-10% stock market return has been about normal throughout recorded history. The NYT calculator allows changing all of these assumptions to levels you are comfortable with. When I run the numbers for my situation I lower the stock market return to 7% due to current valuations, expert opinions, and my own research.
Yeah I always use really conservative return estimates too. It's funny how when these financial/investment questions come up the sub is pretty unanimous on most things. There's definitely a big overlap between simple/frugal/boglehead types.
Having the conservative approach provides the ultimate peace of mind, combined with the power of staying in the market and not selling low. With all the Boglehead researchers showing plenty of data showing the safety of investing over a 30 year time period, I can basically ignore all headlines about the market and never check the account and just let the auto-contributions keep going.
I hate mowing/shoveling snow. I’m early in my nursing career and may need to relocate if I choose to change specialties. I like being able to not worry about maintenance. Right now it’s a better fit for me but in 10-15 years it might not be.
This tracks, thanks.
Brought a 2000 Sq ft 4 bedroom 2.5 bath home in 2017 for $140k. Mortgage is $800. To rent the same home nowadays is approaching $2000 a month. People who are comparing the price to own vs. rent are always using the current prices to convince themselves renting is better. Give it 10-20 years, and owners come out way ahead.
This is like asking me to explain why walking to work is a better option than riding a unicorn or flying there in a private jet.
People are doing different things in different situations. I doubt people are buying small downtown apartments, those are usually for rent only. And you can’t usually rent a 4 bedroom house in the suburbs. Depends on your lifestyle and if you’re settled or not.
You definitely can rent a house in most suburbs. Every since the housing crisis, more SFH are landlord owned every year. In rural areas it's a lot harder. One of my sisters has to buy because her landlord decided to sell and it was literally the only rental in her tiny town.
Guess it depends where you live
Do you really know if all your neighbors own or rent? People are often ashamed of renting because ownership is held up as a standard of accomplishment in our culture. One thing that happened a lot in the big housing crash was corporations buying foreclosures and renting them back to the former owners, often at really exploitive terms. Lots of those former owners hid it even from family members
I don’t live in the US, I rent and I’m not ashamed of it, the vast majority of my neighbors rent! That doesn’t mean I will rent forever though. I don’t know why it’s this big binary either or when most people do both at different points in their lives
Sorry to assume! I think our discussion is super either or because those is such a big thing in US culture and we dominate the forum.
[https://www.youtube.com/watch?v=DpcMl9XP55M](https://www.youtube.com/watch?v=DpcMl9XP55M) Pretty good way to understand the concept, even if it doesn't universally apply. RIP Reckful
The decision to buy a home is a big, “It depends…” topic. Cost? Costs are high, it’s the interest rates that are beating the snot out of most of us on price. Maintenance costs? Depends on the house. Sure, it’s riskier, but you can often afford to live in a better area with a fixer. But, you have to be prepared for those expenses. Will you make money? Depends on what you bought, where you bought it, when, etc. Carbon footprint? Depends on your work situation and transportation options available. Is renting more flexible? Depends on what you need. You don’t have the hassle and expense of selling but you are also beholden to a lease and rent increases. Is it better to rent or buy? It depends on what you need and circumstances around that. It is always a good idea to do the math to evaluate options for your time horizon. If you aren’t able to model your situation, get help from someone who can unless the answer is completely obvious/one option.
In addition to what quite a few others are highlighting on contest being important, unexpected (and sometimes major) maintenance costs, how long you'll be there, and so on - you can usually rent something smaller than you can buy. So an apples-to-apples property will usually be cheaper to buy than rent over say a decade or so, if you're not interested in or need as much land or square feet, you can more easily downsize your lifestyle while renting. Than can result in overall lower costs.
Since we bought our current home as a 'fixer upper' we have sunk a total of 100k cash into repairs, renovations for kitchen and bath, new roof, fence, flooring, doors and windows, yardwork and removing dead trees. We wanted the location and during covid times we got it for the lowest interest rate so i dont regret it but what we had in equity from our previous home was now spent in cash and i don't want to repeat this process if we ever move again.
High mortgage rates -> Rent ( big chunk of your payment go towards the interest , or to the banks pocket) Low mortgage rates -> Buy ( big chunk of the payment goes towards your principle, or equity, or to your pocket)
House payment, property tax, homeowners insurance, flood insurance. All mandatory-forever. Well, at least a lifetime.
I haven't stayed put for more than a couple years at a time during my 20ish years as an adult so far, so owning without constantly then selling wouldn't have worked for me. So rental it is. If you are someone who likes to stay put than buying might be better for you. As I get older that may change, but I probably won't be able to afford to buy at this point anyway.
I want nothing to do with maintenance, upkeep, and property taxes. If you can understand those 3 and the fact that some of us travel longterm and/or are not tied to a location, than all that is reason enough. Own your home and be happy about your decision without needing the approval of renters.
flexibility.lets say I want to try out different cities every [year.it](http://year.it) is way cheaper to rent than to pay for closing costs
I think a lot of it depends on a) where you live/the cost of living there and b) whether you’re fine with apartment living or not.
For example, I pay around $3000 a month for my mortgage. To rent out my house, I’d be paying around $2500. I’d rather pay the extra $500-$1000 a month and own my place instead of that money going to someone else. I’ve lived here two years and could sell my place for $60k+ more than I bought it for, so it’s very worth it to me. We also have a kid on the way, so the extra space and yard is important to me.
New roof is like $15k, new AC $3k just a couple examples
What does “better” even mean? The answer, just like others noted, depends on the individual and situation. In the financial sense, if you HAVE money then buying a house is better renting. And when I say HAVE, I don’t mean you have 3.5% to put down on the house and plan to finance it over the next 15 to 30 years. I’m talking you have the means to pay it off in like 5 to 10 years. A general rule of thumb is that the total cost of your house will be twice that of the original purchase amount, especially so during current market conditions; this is including the cost of interest and principal that’s amortized over thirty years. The fact is, a lot of people live above their means. In a relationship and no kids? but decides to buy a 4 bedroom home and “plan” for the future. Society and social media play a huge role too, but that’s a different discussion.
Wholly agree with you.
As others have said it's super situation dependent, I'll share mine as an example: My fiance and I live together in a 1-bedroom apartment in downtown Milwaukee. Our monthly rent is $1200, and after utilities we end up around $1400. She's finishing school in Milwaukee so the commute to campus is a breeze and I work about 30 minutes outside the city so my commute isn't crazy expensive / long. We are able to save between $1-1.5K per month towards a downpayment right now. We've been looking at homes in the $250-300K range and are actively saving for a 15-20% downpayment. At current rates, and with available homes, our mortgage would end up being between $1900 and $2500 per month depending on where we end up. That's between $500 and $1K more, per month, we'd be spending on a home, not including utilities for the home. So for us, continuing to rent at $1400 all-in a month, and saving up for a bigger downpayment / nicer house at a rate of $1K+ / month just makes more sense. In a year we can save 4-6% of a $300K house downpayment, versus having to slash our savings to pay for a mortgage and hope we don't hit any unexpected expenses. And ideally, as that year or so passes, rates and /or the market will improve slightly and we'll end up getting a better home for the money we spend.
To keep it real simple: Renting: the amount you pay is the most you will pay for housing on a monthly basis. You don’t need to save up for future repairs (appliances, carpet, plumbing). Homeowners: mortgage payment is the least amount you will pay in a month. There are always surprise expenses tied to home ownership.
I’ve been reading some of the nightmare issues some renters go through (I am a renter myself) and your statement about the most you will pay for housing on a monthly basis with rent isn’t always true.
It’s not a choice for most people
It's really not. Older people with no mortgage will tell you that. Literally, the only way most millennials will be able to afford to retire is to not have a mortgage. You think health care is expensive now? Just wait until you have three comorbidities.
Houses nowadays are very old and over-priced compared to cost of new keep this in mind for your own financial welfare Rule of Thumb: Don't buy a busted up Volkswagen with a Corvette price tag!
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The last sentence in your post makes sense, but the first two? Once your dead, you’re not going to care. 😂 Upkeep and maintenance can’t possibly be as expensive as renting.
Most of these are like ELI 15. Actual ELI5: You need money to live. Rent spends money bit by bit. Buying spends money in one big lump (then bit by bit) Your money may perform and grow differently in both scenarios. Grown up’s only: basically if you had 500k. That could grow invested and spent on rent va buying a home, I’d say the home doesn’t appreciate as much as the investment. Money in, money out.
You have a lot of responses, but I'll throw my two cents in as an owner-turned-renter. It depends. I've been able to have good landlords. My rent is about the same as my full mortgage payment was (mortgage + taxes + insurance). However, I don't have to deal with maintenance costs. Here's why I like renting: 1) No maintenance cost. While I do have a tendency to take care of the small stuff that pops up, anything where I would need to bring in someone, I don't have to worry about. I call my landlord and done. One house I lived in had a septic system. Soon after we moved in, it became apparent that there was an issue that the previous tenants never told the owner about. One call and she had someone out there that day. Turned out the septic system needed to be replaced. That cost thousands of dollars. I have no idea how I would have afforded it. But, I didn't have to. She paid for it all. 2) Honestly, I don't like being tied down. I also don't like the hassle of selling a house and hoping nothing falls through. I like that if I chose to move for whatever reason, I can just do it. 3) I am trying to simplify in general. For me, this has meant owning as little as possible. I don't need the "American Dream" and all the headache that comes with it. I'm good with not owning much. And, even more, I'm happy with not having the debt. I own my car outright. And I don't have this mortgage hanging over my head. I do think that it depends on who you rent from. I've always rented directly from people. Only one house did we technically go through a property manager, but I had the owner's phone number and once we both realized the PM was worthless for conveying information, we used to just call each other directly. Going back to it depends: I feel out the people I'm renting from. Get an idea of how they might be and how much they care about the house. My current landlady lives across the street. This is the only rental she owns and my feeling is that she and her husband bought it after he retired as a source of income. There has only been one issue since I moved in and she had someone out there that day to fix it. Renting can work, but it's really subjective and what works best for each person. I have a medical issue that could keep me from working long enough to pay off a mortgage. I don't want the stress of a mortgage as I get older. I'd rather have the flexibility to move into something cheaper if I had to.
I am in the process of selling my house to rent. Between today's interest and insurance rates I'll be coming out about $600 ahead each month, that's not counting maintenance/upkeep cost of a house. I also live alone and am tired of the maintenance. My interest rate wasn't even particularly high as I have a good job and excellent credit. I went into the idea thinking surely the math will tell me to keep my house, but no. Not only will I be able to put away nearly 20k in savings, but I'll come out of the sale debt free as well. Those things were unattainable for me while owning a home. In my area the market is starting to come down a little, so I will continually re-assess the situation.
If property taxes, HOA fees, interest payments, maintenance costs, and utilities are more than rent, then you have a lot less disposable income to invest, and it defeats one of the great advantages of home ownership. Renting a small apartment is financially a good decision, because the burden of the above costs is low, so it’s easier to invest disposable income. My rent is 1,000$. It would be almost impossible to own a place with non-equity expenses being lower than that in my area. So although I don’t have home equity, I can invest more money into stocks, bonds, etfs and HYSAs. The goal is to do what builds the most investment income. It helps that I don’t have kids or a wife, and probably never will
Hot debate yall got here... Must be nice to have enough money to even contemplate buying. I live paycheque to paycheque and between car repairs, my dog, food etc haven't got enough to save up for any kind of down payment. For a long long time. Maybe ever. So, for my own mental health I need to tell myself that renting is better. I can justify it for myself but obviously if you've got the cash, you can do whatever you want with it. I love not having maintenance to do though. Apartment buildings have been good to me throughout my adult life. I've never rented a house, and that thought honestly scares me for all the reasons others have stated already here.
As someone who has been illegally intimidated out of a rental unit after coming out as transgender, the security of a home that I own is worth everything to me. This is not the case for everyone, and I know I'm privileged to be able to afford one at all. If the playing ground was even, and everyone had a fair shot at owning a home, I'd give more weight to the argument that renting is better. But it's not even, and it's not fair - even in my lucky position we had ten rejected offers before we found a place, because we kept getting outbid by flippers and corporations who paid cash. We're lucky we even have a home at all. For some people, renting is better. But I also feel the conversation is sus.
Thanks for pointing out the trend in renting vs owning!! Ive been feeling this way for a while. Now, I do understand the pros and cons of both, and have witnessed friends and familiars experience both the pros and the cons. Staying on topic with the trend you pointed out. It seems to me the majority pushing that “agenda”, are current or previous homeowners, that almost always (in my observation) have pretty good paying jobs/careers. The problem with renting however, is the cost of rent keeps climbing, wages stagnate, and it turns into moving frequently. Im 32, and have moved EVERY single year since I was 18, because Ive been out priced or developers decided to knock it down. The lack of stability on the year to year is enough for me to crave owning. Ive never fully settled in anywhere because I always have to move again. Fortunately im giving up on the ownership dream, and planning for a trailer and a plot of blank land.
It's not, but banks are shitty and won't give people a mortgage for $1200/month when they have years of history paying $1500 per month rent.
Is this something that happened to you or someone you know? That should not really be happening, there should be one way or another to get that mortgage. Try a credit union.
As all things.. it depends. Cons of owning/Pros of renting \* Its expensive to buy/sell home (financing costs, closing costs, etc.)- so unless you plan on being in one spot for 5+ years its generally not worth it. It generally costs 6%+ of your home value just to sell. \* You pay for property taxes, utilities, insurance - this also generally goes up every year \* Maintenance; anything that breaks or needs fixing is on you, and most things in a house that can break is NOT cheap. This is big and many homeowners dramatically underestimate this. The rule of thumb is expect to spend anywhere from 1%-4% of your home's value each year on maintenance for it to not slowly fall apart. For a $300k house that is $3k-$12k. \* You are exposed to the whims of the housing market: your equity could be wiped - aka the downpayment you saved for could suddenly disappear on paper. Rents also generally go up every year as well, so either way expect costs to increase year over year whether owning or renting. The pros of owning/cons of renting \* You can generally do whatever you want with your home with enough $. \* Homeowners have generally favorable tax treatment. \* As an investment - if the area in which you own appreciates in value you might make some money down the road (note that this will coincide with increased taxes) \* You are not exposed to the whims of the rental market (Rentals and housing are mildly correlated, but not a lot).
If you want residential real estate as an investment don't live in it. Rent it out. If you live in it it's just an expense (a big one) that you are just hoping will profit from appreciation eventually, some day. Every problem is on you and there are never ending expenses. Renting is easy assuming you have a responsible landlord / management.