Owning a home vs. renting - which is better?

Great Debates
41

Ah, The Renter’s lifestyle for me…

My main reason for renting: I’m lazy. My rent might be marginally more for a mortgage of a home of similar size, but when we look at what’s included, that extra is worth it for us:

All appliances are replaced if they breakdown: washer, dryer, dishwasher, refrigerator, a/c, water heater.

We get basic cable and water included.

All outside maintenance provided, pool/jacuzzi and weight-room/sauna free, use of lighted tennis court and child play area, use of a multitude of gas grills around the complex, car care area with free vacuum and water hoses, and a bulk trash bin. Safe neighborhood roads for the kids to scooter and rollerblade. We get free rug shampooing with every lease renewal. They hold holiday parties in the common area, with free snacks, soda and beer. Yeah, free beer. Poolside. It’s like resort living.

We have neither the time nor the interest to care for the maintenance of a home, and all the amenities. We are incredibly busy, and something as simple as mowing the lawn is not something I’d ever look forward to doing, if not for anything more, it wastes my time. So you might say, “hire someone to do it.” Well, that negates the savings in a mortgage payment. We proudly pay for rent all that we get, and we get all we can out of it.

We can pick up and move in a 30 day notice, with no further obligation, to another location, whether to pay less rent, get more amenities, more convenient to work/school, etc. Locations, as mentioned in this thread, are almost always easier to find and move into than when house hunting.

One of my only complaints to renting: obnoxious neighbors. However, in a home-owning neighborhoods, if obnoxious neighbors are found, they are more than likely going to be there a long time. Renters, in my experience, don’t last more than a year. Additionally, here in FL, homes rarely have more than a 5-foot strip of land between them… if having your own “space” was an issue, you might as well be in an apartment.

A friend described his need to own a home as having more control over his surroundings. I would attest to that, as we absolutely must share (and have less control) over all the outer amenities to the complex. But that matters little to us. I really don’t even care if the neighborhood kids use our bikes off of the common bike rack, as long as they are there when we want to use them.

As far as the mortgage interest deduction for taxes goes, we figured out that we would need to have an incredibly high interest payment to reach the standard deduction, and we have precious few other deductions that it just makes no sense for us to itemize. Hence, no tax benefit unless we were paying roughly 1.5x what we are currently paying for rent.

42

sailor, one question –

You’ve asserted a few times that if you rent, you can then invest money to generate a better return than you’d get through appreciation on the real estate. Where would the money come from to invest? If someone is looking at a $600 rent payment, or a $600 mortgage payment, where does the extra money come from to invest if they choose to rent?

I’ve done both. My preference is to own. Then again, I’ve always lived in an area where apartments aren’t terribly prevalent as compared to single-family dwellings.

43

Forgive my additions (all of the [free] comments) but that is what is implied by your post. And if you didn’t mean to imply it, then there is no difference between owning & renting because appliances are always replaced if they breakdown, ownersip/rentership not withstanding.

To expand on the last paragraph in Holly’s post, you are paying for all of these “free” things whether you realize it or not. What would happen if all of a sudden the pool & tennis courts were closed permanently? I bet a whole lot of tenants in your community would be up in arms demanding that their rents be lowered because of the lost amenities. Ergo, the cost of maintaining these facilities is built into your current rent payment.

Not being a landlord myself (but I do reside on a condo association board) I’ll just have to pull some numbers out of the air, just to have something to work with. Let’s say that out of your $1000 rent, the landlord pulls $20 a month and sticks it into a reserve account for things like replacing refrigerators, etc. Let’s also say that there are 500 rental units in your complex (I believe that’s a typical apt complex in my area, but from all the amenities you’ve listed, that number may be much higher for you). That comes to $10k per month. A sweet deal for the LL, even if we say that 10 refrigerators need to be replaced each month (no way).

I’d rather stick that $20 into my OWN reserve account each month. After 10 years, I will have saved enough to replace three refrigerators. And until the fridge breaks, that money is still mine.

To make the comparison fair, I should add to my mortgage payment all money that I am putting into my savings account in anticipation of future repairs. Add to that the fact that, if I sell the house, my money comes with me.

You can stay in an apartment for 10 years, contribute $20 a month into the landlord’s maintenance reserve account, and if you leave without having your fridge replaced, that is lost money. Also remember that that was not your fridge in the first place, even though you are paying money into an account to have it replace some day.

How is this relevant?

Fine, that is a valid reason for renting in your particular set of circumstances.

I disagree, for reasons stated above. X number of dollars in your rent pays to mow your landlord’s lawn.

44

Wrath- I do see your point. Yes, for many people, renting is preferable.

I own my own home (and several other peoples’ homes). I don’t have a pool, sauna, weightroom, or any of the other amenities you mention. Neither to my tenants, with the exception that they do no maintenance, I replace their appliances, and I even mow their lawns for them.

You, Wrath, are paying for goods and services which I choose to go without. I, Holly, am investing in a property with long-term benefits which you choose to go without. At this point, it’s simply a matter of personal preference. My way isn’t “better” than yours, or vice versa. It comes down to personal priorities.

If having a nice place to live without having to spend extra time or money to maintain it is most important to you, then renting is (usually) the best way to go. If frugality and long-term investment is the priority, then home ownership is (usually) the best way.

45

It is a matter of preference and personal situation. As I said,if all these are true then it is almost sure you are better off renting:

(1) You can invest your money so it will yield more than the if you invested it in your home
(2) You have a reasonable suspicion the property may depreciate
(3) You cannot pay cash and your income is not absolutely reliable
(4) You may have to move due to job, family or whatever reasons
(5) You do not want to pay or manage for maintenance and other expenses
Comparing your mortgage payment with your rent payment is meaningless. As has been said by several posters, your rent payment covers things which are not included in your mortgage payment, maintenance being one of them.

Regarding the point about the possibility of getting greater yield for your investment elsewhere, a good point is that a mortgage may allow you to get a loan which you could not get otherwise.

OTOH, you have to realize that, if you are highly leveraged you can find yourself in the uncomfortable situation of having negative equity on the property, in other words, owning on it more than it is worth if you sold it. If you need to move at that point you can be really screwed.

46

Attrayant, renters are quite aware that we do pay for all the amenities through the rent. But I am convinced that the rent is cheaper when you add in not only the cost for all the amenities, and their upkeep, but in the value of your time to either take care of them or find and pay someone who will (all inclusive, not just the lawn-mowing example). Owning a pool, for instance, would never mesh with my ability or desire to upkeep the thing. The cost/benefit ratio of renting really makes it worthwhile for us renters.

Only in the sense that we have 4 children and they love to rollerblade and scooter, and in the apartment complex the speed limit is 5, whereas on most neighborhood roads lined with houses the speed limit is 35 or higher. What’s the value of safe roads outside your front door? It’s incalcuable.

Sorry, I answered this in the first paragraph. Subtract the costs for providing and maintaining all the amenities and see how little “rent” is acutally paid.

No one disagrees that by renting there is no investment whatsoever in the roof over your head. There are other investments, and we have chosen not to invest in real estate at this time because it would not be wise given our present lifestyle.

However, our apartment management company entitles all leasees to enroll (totally for free) in a home-buying plan that can provide up to $10,500 (depending on total rent paid and # of years of tenancy during the enrollment period) toward the closing costs and down payment on a house, so long as the property to be bought is managed by the same company. Oh, heh, sorry. This actually is an investment plan. My bad.

47

Just to repeat my question (because it’s possible you overlooked it; this is a long thread): Where does the money for investing come from? In my neck of the woods, rent on a two-bedroom apartment is roughly equivalent to a mortgage payment on a two-bedroom home. Renting isn’t automatically cheaper than buying.

48

OK, here’s the thing I’m not seeing. If renting is
such a good deal, what’s in it for the landlord?

Sailor has repeatedly claimed that you can do better investing your down payment elsewhere and renting. The landlord then assumes all the cost of maintenance, repair, interest payments, risk of depreciation, and so on. My intuition is that in a perfect market (which exists only in theory), renting would always have some drawbacks because the landlord wants to pull some profit out of the deal.

I don’t know if landlord’s get the homeowner’s exemption on mortgage interest (I don’t think so), but failing that, they have to somehow cover all their costs and make it worth their while to do so. They can do this in a number of ways: skimp on maintenance and quality of construction materials, provide smaller or lower quality living quarters,
reduce the amenities (green space, privacy), and so on. If the landlord owns a large number of properties, there might be some economies of scale, but this certainly would argue against care in maintenance.

The only times that you actually get a good deal with rentals is if the landlord has owned the property so long that there is no mortgage and all rents can go to maintenance, utilities, and taxes. Or the flip side, the market fell and the landlord can’t sell the house, so has to rent it to defer the cost of the mortgage. So that’s the catch – you are benefiting from someone’s investment in a house at some previous time.

BTW, sailor’s example of a friend who got talked out of investing in a $650,000 house vs paying $2500/month rent makes no sense. Using sailor’s reasoning, if it’s a better investment for the landlord to sell the house for $650,000 and take the profit and invest it at better than 5%, then the landlord is going to do it, and sailor’s buddy is going to be out on the street with all his furniture looking for a new place to live. A place which will, in all probability have a higher rent, because the market has adjusted so that the investment return on leasing property is equivalent to that of other investments.

49

Finagle:

As a landlord, I can tell you that when considering whether to buy or not buy a particular property, your landlord considers many factors. How much rent (according to fair market value in the area) can we get for each unit? What is the initial cost of repairs to get the units into good condition? (We buy run-down properties and improve them through sweat equity; others choose properties that need less initial repair. They pay more and have a slimmer profit margin, but avoid the cost of major repairs.) How much will it cost to maintain the property? What do we predict will be the cost of vacancies and advertising for new tenants? What sort of tenants can we expect to have? (Low-income tenants cost much more than others in vacancies, repairs, and unpaid rent; however, there is a point of diminishing returns where rentals with high-income tenants provide less profit than medium-income rentals.)

As a landlord, when my properties are eventually paid in full, I will not reduce my rents. I will continue to charge fair market value; after years of making just enough to make it worthwhile, I will look forward to the day when the majority of the rent money goes into my pocket. I will continue to have tenants as long as I charge fair rents.

People who are in landlording as a business try very hard not to buy a property that will fall in value, nor will we rent a place to merely defray the cost of our expenses. If the place doesn’t turn a profit (or at least break even) we must get rid of it.

What it really comes down to, though, is what the individual wants to receive in return for his money. Money is a tool; it’s not the end product. For example, if I asked you: “Which is better: paying $200 per month for a two-room house, or paying $2,000 per month for a luxury apartment?”, it would depend on your own priorities, your income, and your goals. The $200 place will provide basic shelter from the elements for even a large family. Most of us (here) are not willing to live in a cramped, dirty, roach-infested, hideous little shack, even if it means a savings of $1,800 per month.

Why? It comes down to priorities. What do you want your money to do for you? Therefore, I believe that the question, “Which is better, renting or buying?” can be answered only on a purely personal basis.

50

I wish people would read more carefully. I hate it when people are just trying to be contradictory, especially when they are contradicting things I never said. Please read and understand what I said before you contradict what I didn’t say.

>> Renting isn’t automatically cheaper than buying

We agree. I never said it was. All I said is that buying isn’t automatically better than renting.

>> Sailor has repeatedly claimed that you can do better investing your down payment elsewhere and renting

Can you please show me where sailor has repeatedly claimed this? You are not paying attention. I said if this is the case then… furthermore I said it is a rare case… so don’t put words in my mouth ok?

Also, some people need to understand rent and sale prices are determined by the market. There is obviously a connection but glitches in the market may produce situations where market rent and market sales value are disproportionate. When I did that study I found the cheapest units produced the highest rental income (per dollar invested). In other words, you are going to get a lot more rent from 20 $50,000 units than from one $1,000,000 home. Way more. That’s the way it is.

51

BTW, there are many reasons why you can find rents above and below standard but the most obvious is places with rent control. You often see people renting places where they would have to be crazy to move out as they have rents which are ridiculously below market. I can tell you. I know. I am renting such a place and as long as I spend at least a month out of the year there, it is well worth the rent.

Now, I am totally against rent control laws, but, as long as they exist, they make a very good argument for some people to rent. When my friends find out what I am paying they can’t believe it.

The case of my friend was not a case of rent control though. It was just a fluke in the market.

A similar case of rent/buy is with boat slips. In the very long run, it is better to buy one but you are tied to it. OTOH I am paying for my slip about 1/3 of market price just because I found a nice old lady and she likes me and every year I’ve managed to lower the rent a bit just by smiling to her nicely. I’d have to be crazy to buy a slip. OTOH, when she dies I’ll have to reconsider the situation as the new owner will surely not maintain the same conditions. I hope she will live many years… :slight_smile:

52

This definitely implies that you are suggesting that the mortgage money may be invested elsewhere instead. My and Sauron’s and Holly’s (and other’s) point has been that you can’t normally invest that mortgage money elsewhere since you would have to be paying it out in rent anyway. Especially if, as for so many of us, rent would be more than the mortgage in the property we live in.

pan

53

In the alternate renting scenario, are you just investing the downpayment, or is there other money you are investing?

54

If getting a mortgage is the only way for you to get a loan, then… that’s the only way to get a loan!

Still, look at this scenario: You are paying extremely low rent (due to rent control laws or whatever reasons). Should you move out just to own? NO! Buy another home, get a mortgage on that one and rent it out. You are still doing what I said of separating the investment side from the consuming side. You can have the best of both worlds.

55

Okay sailor I’m confused and too damn idle to reread the thread from the start.

We pay about $32K in rent each year. That does not include hydro, water, gas, cable, phone, etc… expenses. The property is well maintained by the landlord and he is extremely responsive when things go wrong.

Given that the rental amount is a relatively small fraction of what I earn, and given that if I were to buy a property of equal value in our neighbourhood I would have to shell out approx 400k (+/- 25K). What should I do? Continue to rent or buy? Keeping in mind the following:

  • We move around a lot due to my line of work. Every 2 years on average.
  • We like it here and may be here another 3-5 years if things go well.
  • I can put $200k down now and pay the balance in 2 or 3 years. Probably 5 if we decide to buy that sailboat we’ve had our eye on (+6 feet over the old one!)
56

if you are moving every 2-3 years you should forget about buying your home. OTOH you can buy as an investment but you have to be very careful because being landlord is quite a job and much more so long distance.

In other words, and generally speaking, buying your home now to sell it in 3 years: not a good idea, not worth the effort.

Buying your home now and renting it out when you move: On the whole I would not recommend this as it can become a nightmare… OTOH there’s always exceptions to every rule.

57

Yeah, pretty much the tack we’ve been taking as well. However, one of these days, when we find a place we want to settle, we’re going to build a damn fine house to live out the rest of our lives. Costs and logic be damned (to a point)!

58

Wow! building versus buying! another hgreat debate! And I can argue that one flat or round as well! I can tell you almost everybody I know who built a house say they would most definitely not do it again!.

And we could also discuss buying vs chartering boats. I used to have much more fun sailing when I didn’t own a boat. As I am sure you have heard, the two happiest days in the life of a boat owner: (1) the day he buys it and (2) the day he sells it. :slight_smile:

59

sailor:

I emphatically agree.

Happily, we’re an exception. We still own our first and second houses. The first, we intend to sell this summer for a tidy profit (to be reinvested in other properties). The second, we’ll hold at least until it’s paid off: it’s just the right kind of place where we can attract good, long-term tenants, and the rent pays all the expenses of owning it.

When moving to a different town, however, it’s very difficult to maintain a rental property in your former town. It’s definitely not worth the hassle: you either have to make frequent trips to maintain the place, or you have to rely on a property manager. Either way, the extra bother and expense will likely eat up all of your profit. It’s almost impossible to manage a long-distance property well. That’s why we’re just about to get an excellent deal on the duplex across the street from us- the landlord lives two states away and is making no money at all due to shoddy management.

60

Ah yes, building…
My brother did it and will never ever do it again.
My sister, OTOH, would. Though she had lots of problems.
A friend built, and I got to kibbitz on the goings on, and decided no, this is definitely not for me. He was at the site just about every day, and just about every day he found that the builder was doing something just a little bit to the left of his specs. Accumulate all those small mistakes, and he would have ended up with a house quite a bit different than the one he wanted.