Renting is Better Financially Than Buying a House

[Zip]

Yeah but the problem with this thinking is if you were to sell your house and buy in the same market/area you'd be paying higher prices on the next house.

Click to shrink...

That is only if you buy in the same area though.

My wife and I sold our old place for about 120k more than we bought it for after 3 years. That plus the equity we had built up allowed us to buy a much bigger place in a different area where prices have not yet increased as much.

Works pretty well as long as you have areas like that to move to. It's all a personal decision though, and very context-specific.

 

[OgTheEnigma]

So what would happen if you reach retirement and your pension doesn't cover the cost of rent?

 

[Darknight]

Not true. Even after you own your home completely, you will have property tax/insurance that you will continue to pay. And property tax goes up with property values/inflation. Property tax + insurance is actually 40% of my mortgage payment right now, and I am just in the second year of home ownership. And as I spend more time in the house, I will continue to spend more on maintenance.

Click to shrink...

Really depends on where you live though. Here, the amount your property tax can increase is capped so by getting in, you can lock in a relatively low property tax value. Another thing to consider is your mortgage is fixed where as rent can increase over time depending where you live. Having a locked in rate by buying could be advantageous.

 

[Masoyama]

Not at all. Constant upkeep is implied and continued. You are just being silly suggesting it's timed with paying off your mortgage.

Click to shrink...

Most appliances have a 15-20 year life expectancy. An average mortgage is 30 years. That means you will be replacing everything in your house once or twice by the time you pay it of.

 

[Deleted member 17092]

Most people never pay off their house. 44% of American retirees carry a mortgage into retirement.

Moreover, you can take your additional money from the stock market and pay rent into retirement. Usually, retirees will sell their house and downsize to something cheaper, using the excess equity to pay living expenses in retirement.

Click to shrink...

So you're saying that equity was still useful. And if 44% of retirees carry a mortgage there's at least a solid chunk of them that did pay off their mortgage.

 

[DreadPirateRoberts]

Great OP, I've always had an issue with the myth too.

Though I disagree with your real estate rule of thumb factors or your strong statement in the other direction.



He literally mentioned that in the OP. Even if you compare it to the stock market, you bought Apple stock. What about others who bought and held Blackberry?

When talking about an overall situation of buy vs rent as a myth, you have to consider the average/median house appreciation vs average/median portfolio gain.

Here's a comparison since the recession by redfin (who as you know are in the housing market side of things).

https://www.redfin.com/blog/stock-m...ich-has-rebounded-better-since-the-recession/

Not true. Even after you own your home completely, you will have property tax/insurance that you will continue to pay. And property tax goes up with property values/inflation. Property tax + insurance is actually 40% of my mortgage payment right now, and I am just in the second year of home ownership. And as I spend more time in the house, I will continue to spend more on maintenance.

Click to shrink...

There are still payments, but 40% will still always be significantly lower than 100%, maintenance costs also aren't that significant, especially if you learn to do basic things yourself

 

[Hassel]

Thanks to Trump and the capped property tax deductions that's not accurate for everyone anymore.

Click to shrink...

How is it not accurate?
If you pay you mortgage off your costs decrease.

 

[Culex]

Also look at the other end of the equation - if you lose your job. Not ideal if you have little savings, but you miss rent, you get booted. You miss the MTG payment, and especially nowadays with banks, you have some leeway before you get back on your feet.

 

[Sampson]

So you're saying that equity was still useful. And if 44% of retirees carry a mortgage there's at least a solid chunk of them that did pay off their mortgage.

Click to shrink...

Sure.

What I'm saying is imagine two people. Both are 65.

One has a pension that gives them $1,000 a month and a paid for house that's worth $500,000.

The other has a pension that gives them $1,000 a month and a stock portfolio worth $1,000,000.

The second person is clearly better off. If they want, they could sell half their stocks and buy $500,000 house and still have $500,000 more than the first person.

 

[Vincent Grayson]

This is true. And if you truly lack the financial discipline to force yourself to save, you might want to buy a house.

Click to shrink...

Which, as it turns out, is true for a fuckload of people.

Also, there's so many opportunities to not put 20% down these days that assuming people buying houses are spending that kind of money isn't necessarily accurate.

 

[Sampson]

Also look at the other end of the equation - if you lose your job. Not idea if you have little savings, but you miss rent, you get booted. You miss the MTG payment, and especially nowadays with banks, you have some leeway before you get back on your feet.

Click to shrink...

Yeah you can squat for a year, while a landlord while kick you out after a month. But it's clearly better to be a renter in that situation. It's easier to go find a job some place else.

 

[Mathieran]

I'm going to have my house paid off before I'm 40. So after that it's only property taxes. Plus its value has gone up probably like 30% in the 5 years since we bought it just by virtue of the area becoming more expensive.
I know everyone is different but this works for us.

 

[goldenpp73]

There are still payments, but 40% will still always be significantly lower than 100%, maintenance costs also aren't that significant, especially if you learn to do basic things yourself

Click to shrink...

I still haven't seen anyone address the issue of space. I have a 3500 square foot house, when I was renting a condo it was 1500 and only slightly less expensive. I have never seen a rental that had the same or less cost AND a similar space versus owning. There is a lot more that goes into this stuff as well. I remember renting awhile ago and the owner sold the house, causing us all to be kicked out. I can't imagine the strain of that with a family.

Money you put in matters to what you get out as well. If you're paying 1500 a month for a small place to live vs 2200 a month for something you'll own and is twice as big, i'd say that's smarter.

 

[Deleted member 10551]

A house is good if you can pay it off quickly, and you expect to stay in an area. Otherwise it's not the worst thing, but not the best.

Paying $400 a month in maintenance/insurance/property taxes and HOA beats spending $1000-1200 in rent and associated costs.
It's the difference between saving $1k/month, and $2k/month for when you don't have a job anymore.

If I don't need to use the equity, I can donate the house to someone worthy when I die.

 

[Deleted member 33887]

In general buying a house is a hedge against rising rents. If I rent perpetually almost all of my raises go straight to rent, because rent has nearly matched inflation. And moving isn't exactly cheap because landlords typically stiff you on deposits (and also maintenance if they think they can get away with it, which is when renting really becomes awful).

 

[ascii42]

Most appliances have a 15-20 year life expectancy. An average mortgage is 30 years. That means you will be replacing everything in your house once or twice by the time you pay it of.

Click to shrink...

Whereas when you rent, the landlord will be replacing those and paying for other required maintenance and knows this so bakes that cost into your rent. The benefit then of renting is fewer unexpected costs.

 

[Masoyama]

I still haven't seen anyone address the issue of space. I have a 3500 square foot house, when I was renting a condo it was 1500 and only slightly less expensive. I have never seen a rental that had the same or less cost AND a similar space versus owning. There is a lot more that goes into this stuff as well. I remember renting awhile ago and the owner sold the house, causing us all to be kicked out. I can't imagine the strain of that with a family.

Money you put in matters to what you get out as well. If you're paying 1500 a month for a small place to live vs 2200 a month for something you'll own and is twice as big, i'd say that's smarter.

Click to shrink...

Why does space matter? Id rather pay more for the right ammount of space than pay less and get more stuff I wont use.

Whereas when you rent, the landlord will be replacing those and paying for other required maintenance and knows this so bakes that cost into your rent. The benefit then of renting is fewer unexpected costs.

Click to shrink...

Right, so when you compare the cost of renting vs owning in your area you have to consider the cost of all the taxes, registrations, mortgages, maintenance, etc. People here are talking like you can just compare mortgage vs rent and make a decision based on that.

 

[Hollywood Duo]

How is it not accurate?
If you pay you mortgage off your costs decrease.

Click to shrink...

In comparison to renting where you don't pay property tax.

 

[ZeroDotFlow]

There are still payments, but 40% will still always be significantly lower than 100%, maintenance costs also aren't that significant, especially if you learn to do basic things yourself

Click to shrink...

Instead of having to spend time learning how to repair and maintain your house, you could've theoretically put that time into something that would directly earn you more money or grow your career.

For example, I'm a software engineer right now. For me, it would be far more valuable to spend that time sharpening up my skills, learning new languages, creating new projects etc than it would spending that same time on repair or maintenance. Now if you enjoy learning how to maintain things like that then it's no problem, but you need to factor how valuable someone's time is when you consider maintaining things yourself.

 

[Deleted member 17092]

Sure.

What I'm saying is imagine two people. Both are 65.

One has a pension that gives them $1,000 a month and a paid for house that's worth $500,000.

The other has a pension that gives them $1,000 a month and a stock portfolio worth $1,000,000.

The second person is clearly better off. If they want, they could sell half their stocks and buy $500,000 house and still have $500,000 more than the first person.

Click to shrink...

Yeah, most people aren't very good at investing as much as they should though.

So it's really a personal decision. If you're very good at saving money and investing for retirement, you might be better off renting.

You're also discounting that the first person could have a 500,000 house and a 500,000 stock portfolio. Then it's pretty much a wash.

For me, we are trying to buy a house because we want a yard and a garage and I don't want to live in a duplex or 4 Plex. If I were to rent the set up I want it would cost more than the mortgage, insurance, and taxes combined.

So yes, I can save money by renting, but I dislike living in a 600sq ft apartment with no yard and no garage. I'd rather not dislike my living situation for the entirety of my working life.

 

[Sampson]

This is one of the better tools: NY Times Rent vs Buy calculator

Click to shrink...

By default, this calculator assumes that home price appreciation will grow faster than rents. This could happen in the short-run, but over time is mathematically impossible.

 

[breakdancing duck]

I bought my house at the end of the last market crash, but my mortgage payment plus insurance and taxes is cheaper than most apartments in my area.

 

[goldenpp73]

Why does space matter? Id rather pay more for the right ammount of space than pay less and get more stuff I wont use.



Right, so when you compare the cost of renting vs owning in your area you have to consider the cost of all the taxes, registrations, mortgages, maintenance, etc. People here are talking like you can just compare mortgage vs rent and make a decision based on that.

Click to shrink...

Space matters for almost everyone that exist. People want to have rooms for their kids, hobbies, guest rooms, a place to work out, or whatever. Basically the only logic to this concept is if you decide you never want kids, no company overnight, and no interest or hobbies that would benefit from more space. Hell, i'm a house of 2 and I use up almost every part of my home.

I know the OP addressed that lifestyle matters, but the reality is most people want to be married or have kids, and you can't usually get a 3 or 4 bedroom rental for less than owning the property I think?

 

[Sampson]

Whereas when you rent, the landlord will be replacing those and paying for other required maintenance and knows this so bakes that cost into your rent. The benefit then of renting is fewer unexpected costs.

Click to shrink...

This isn't true. I already addressed this in the original post.

The cost of upkeep is irrelevant to the cost of rent. It's simply what people are willing to pay to rent.

 

[Masoyama]

Space matters for almost everyone that exist. People want to have rooms for their kids, hobbies, guest rooms, a place to work out, or whatever. Basically the only logic to this concept is if you decide you never want kids, no company overnight, and no interest or hobbies that would benefit from more space. Hell, i'm a house of 2 and I use up almost every part of my home.

I know the OP addressed that lifestyle matters, but the reality is most people want to be married or have kids, and you can't usually get a 3 or 4 bedroom rental for less than owning the property I think?

Click to shrink...

You can rent big houses out in the suburbs. I remember growing up in a 5 room rented house when I was a kid.

 

[subpar spatula]

Depends where you live. If you live in a relatively cheap area, may as well buy a house 'cause even if the market crashes, you still own a house for cheap. If the area you live in is increasingly in value at a fast rate like Vancouver did then buy up and flip. Owning a house is a great financial investment.

 

[Pwnz]

What the OP says is true in some areas like Texas where property taxes are 3% and nearly a 2nd mortgage that's never paid off.

 

[GrizzleBoy]

So what would happen if you reach retirement and your pension doesn't cover the cost of rent?

Click to shrink...

Exactly.

This is the most important reason for most people buying their own places.

In a world of ever increasing rents and questionable pension security, having a paid off property worth hundreds of thousands of poinds/dollars can literally be life and death.

A lifetime of mortgage payments can set you up for retirement, even If you don't fully pay off and need to move to a cheaper area.

Time to retire and only paid 100k out of your 200k mortgage? Fine. Buy somewhere cash and live off of your pension.

A lifetime of rent payments does nothing but drain you for the privilege of being able to have unsecured shelter, and you pay till you die, or you die if you cant.

Time to retire as a renter? The realistic situation for most is that paying rent as a retiree will suck up most of their pension payments and they'll be scrapping to make ends meet.

And we haven't even mentioned how important and advantageous it is in this day and age to be able to hand over a fully paid off, or even partially paid off property to your kids in a world where buying is so hard.

 

[Sampson]

Depends where you live. If you live in a relatively cheap area, may as well buy a house 'cause even if the market crashes, you still own a house for cheap. If the area you live in is increasingly in value at a fast rate like Vancouver did then buy up and flip. Owning a house is a great financial investment.

Click to shrink...

It's also a great financial decision to buy stocks like Apple when they IPO. Just make sure you don't buy stocks like Pets.com. If you can predict which is which, I'd like to borrow your crystal ball.

 

[whatsinaname]

Space matters for almost everyone that exist. People want to have rooms for their kids, hobbies, guest rooms, a place to work out, or whatever. Basically the only logic to this concept is if you decide you never want kids, no company overnight, and no interest or hobbies that would benefit from more space. Hell, i'm a house of 2 and I use up almost every part of my home.

I know the OP addressed that lifestyle matters, but the reality is most people want to be married or have kids, and you can't usually get a 3 or 4 bedroom rental for less than owning the property I think?

Click to shrink...

The renting market has changed a little, on the space front.

There are now a lot of corporate single family home landlords who rent out. And like OP said, cost of rent in an area is not directly proportional to the cost of owning a property.

e.g.

https://www.invitationhomes.com/

 

[subpar spatula]

It's also a great financial decision to buy stocks like Apple when they IPO. Just make sure you don't buy stocks like Pets.com. If you can predict which is which, I'd like to borrow your crystal ball.

Click to shrink...

The housing market is easier to read than the stock market. :/

 

[Zippedpinhead]

As others have said, it depends greatly on the market you live in, in my market if you have good credit and any money to put down you can get a house with a mortgage cheaper than an apartment in the same areas.

 

[Sampson]

The housing market is easier to read than the stock market. :/

Click to shrink...

Yes. That's why we can all flip houses to support ourselves and no one needs to work.

 

[CrankyJay]

Great OP, I've always had an issue with the myth too.

Though I disagree with your real estate rule of thumb factors or your strong statement in the other direction.



He literally mentioned that in the OP. Even if you compare it to the stock market, you bought Apple stock. What about others who bought and held Blackberry?

When talking about an overall situation of buy vs rent as a myth, you have to consider the average/median house appreciation vs average/median portfolio gain.

Here's a comparison since the recession by redfin (who as you know are in the housing market side of things).

https://www.redfin.com/blog/stock-m...ich-has-rebounded-better-since-the-recession/

Not true. Even after you own your home completely, you will have property tax/insurance that you will continue to pay. And property tax goes up with property values/inflation. Property tax + insurance is actually 40% of my mortgage payment right now, and I am just in the second year of home ownership. And as I spend more time in the house, I will continue to spend more on maintenance.

Click to shrink...

Uh. Tax and insurance doesn't have anything to do with your mortgage payment unless you're in escrow. your mortgage payment is just your home loan. Not the totality of all these things.

 

[Dan]

Renting vs Buying is purely situational based upon personal circumstances. One may be better than the other for one person, and not for another.

 

[subpar spatula]

Yes. That's why we can all flip houses to support ourselves and no one needs to work.

Click to shrink...

Flipping a house is more work than buying and sitting on a property. I'd advise the latter.

 

[Deleted member 17092]

By default, this calculator assumes that home price appreciation will grow faster than rents. This could happen in the short-run, but over time is mathematically impossible.

Click to shrink...

It's entirely market dependent. I guess if you assume the market you're talking about doesn't have a housing shortage, sure. Problem is pretty much every major US market has both a housing and a rental shortage, but it's easier to make a dent in the rental market with multi-units.

Like there's a reason it's called real estate. There's only so much room for houses in a desirable market. Sure you can live in the suburbs or exurbs but not everyone wants to do that.

If you can even successfully buy a house in a good neighborhood in a top 15 market city (it's pretty hard to do without a cash heavy offer), there's a pretty reasonable chance it will appreciate at a much greater rate than rental prices. And even if there is a stock market crash, it's not going to be a real estate driven crash like the great recession was. Sure, values will take a hit for a while, but they won't literally lose like more than half their value or more.

 

[Nothing Loud]

The real answer is: it depends. There's no hard fast rule on whether it makes more sense to rent vs buy. Depends on your debt, income, your time horizon (like any investment), your down payment, your tax situation.

 

[whatsinaname]

Uh. Tax and insurance doesn't have anything to do with your mortgage payment unless you're in escrow. your mortgage payment is just your home loan. Not the totality of all these things.

Click to shrink...

What is the point of comparing rent to mortgage payment without counting tax and insurance and maintenance costs on the purchase side?

 

[Felt]

OP your thread is honestly more dangerous than it is helpful. You are wrong in most points in many housing markets.

If you buy, your monthly payment is fixed. If you rent, your monthly will go up every year. When I was in school my rent went up 3% every year (rent control). In the last year I was close to being priced out. Wish I had the money and could have bought something back then. My mortgage wouldn't go up and now I could rent it out or sell it. That's reason enough to counter anything you said.

Sure in Alabama it's better to rent. But who cares??

 

[Sampson]

It's entirely market dependent. I guess if you assume the market you're talking about doesn't have a housing shortage, sure. Problem is pretty much every major US market has both a housing and a rental shortage, but it's easier to make a dent in the rental market with multi-units.

Like there's a reason it's called real estate. There's only so much room for houses in a desirable market. Sure you can live in the suburbs or exurbs but not everyone wants to do that.

Click to shrink...

Literally every human in the world could fit in the state of Texas. There's plenty of land, and technological advancements like self driving cars and companies like clutter could greatly reshape where people want to live.

 

[peteykirch]

There is an inherit value in being able to customize and change things as you please, which is something that doesn't make itself available with renting.

 

[ZeroDotFlow]

Exactly.

This is the most important reason for most people buying their own places.

In a world of ever increasing rents and questionable pension security, having a paid off property worth hundreds of thousands of poinds/dollars can literally be life and death.

A lifetime of mortgage payments can set you up for retirement, even If you don't fully pay off and need to move to a cheaper area.

Time to retire and only paid 100k out of your 200k mortgage? Fine. Buy somewhere cash and live off of your pension.

A lifetime of rent payments does nothing but drain you for the privilege of being able to have unsecured shelter, and you pay till you die, or you die if you cant.

Time to retire as a renter? The realistic situation for most is that paying rent as a retiree will suck up most of their pension payments and they'll be scrapping to make ends meet.

Click to shrink...

So what exactly would stop a renter from say, moving far out where the rent is cheap? There are some areas where you can rent a decent place for dirt cheap. You're assuming that a renter is absolutely tied to high rent locations when that's not the case.

As long as you own a home, your entire investment and life is tied up in that one location. If a disaster strikes, or if you're in an area that'll be affected by climate change, or if you need to move for your career, or if you need to move closer to family, your house becomes a liability.

The common advice in investing is to keep a diverse portfolio. So why does that get thrown out the window for housing? This gets even worse considering in America the most affordable homes are going to be in places with terrible public transit, food and entertainment options.

 

[CrankyJay]

What is the point of comparing rent to mortgage payment without counting tax and insurance and maintenance costs on the purchase side?

Click to shrink...

Your mortgage payment is your loan principal + interest. Not your tax and insurance bundled in. That's all I'm saying. They're separate things.

 

[shinra-bansho]

So I always get really confused by these threads.
Is the assumption that instead of $1000 a month into a mortgage, you put $1000 a month into an index fund?
Where do you live?
Is it that you somehow live in the same circumstances but for e.g. $500 in rent, as you would if you were paying a $1000 mortgage, through magic. And then put the other $500 into the market?
Is it this only in regard to purchasing something as an investment with excess capital?

 

[ascii42]

This isn't true. I already addressed this in the original post.

The cost of upkeep is irrelevant to the cost of rent. It's simply what people are willing to pay to rent.

Click to shrink...

Yeah, this part.

Another thing people often believe is that the price of rent must reflect the cost of owning -- that the rent has to factor in the mortgage, taxes, maintenance, etc. This is not simply true. A landlord may have bought the house many years ago, paid it off, and have much lower costs than someone who is buying today. They may be renting it out at a loss. They may own hundreds of homes and have lower costs because of economies of scale (for example, a dedicated maintenance team). Rent is a function of what people are willing to pay. Not a function of what it costs to provide the home. Rents determine house prices. Not the other way around.

Click to shrink...

Yes, you are right, they could be operating at a loss.

 

[Dragonborn]

On 15 years when I hit 40 my house will be paid off and my only monthly expense will my property taxes and utilities, I think the lack of stress that'll come with it is worth it

 

[Deleted member 15737]

Welp, guess I won the lottery twice. *shrugs*.

Nothing beats being paid to live somewhere.

Hasn't Detroit been a good place to buy the last 5 years or so?

I'll add that when switching from rent to own, we doubled the square footage, # of rooms, got a yard, and a basement, and an extra full bath, and paid the same in mortgage as we were for rent. And yeah, essentially paid to live there for the 5 years we were there. Very similar locations.

Appliances were included, we bought an appliance repair plan for a fixed price (covered fridge, dishwasher, washer/dryer, air conditioner, and furnacea) and made very good use of it.

EDIT: Forgot to add, we bought with no down payment (or a small one, like 3% maybe?) so the alternate option wasnt really an option.

 

[Carnby]

Even if I ended up spending more in the long run, dealing with landlords is a pain in my ass. That alone is why I'm saving up for a downpayment ASAP.

Click to shrink...

This.

I can't wait to buy a home and tell my piece of shit landlord to kiss my ass.

 

[ruggiex]

Yep, although there are plenty of exceptions, generally buying a house shouldn't be seen as an investment. It could work out better than rent due to housing market bubble or what not but it's a less sure thing than long term investment in index fund. Statistically a lot of people buy a home and end up moving less than 5 years of owning which means a lot of money wasted (except in a housing bubble).