Is there anything "wrong" with renting?

[ponyboy]

Yes you aren't building up equity, BUT you also aren't paying property taxes, maintenance, and your renters insurance is much lower than homeowner insurance in most cases. Those costs (especially upkeep and maintenance get overlooked in equity calculations a lot).

So, who exactly do you think is paying for the property taxes and maintenance? Renter's insurance is cheaper than homeowner insurance because the apartment building is insured by the owner and renter's insurance only covers the contents of the apartment. All of these costs (taxes, maintenance, building insurance, etc) are all passed down to the renter, so every renter is paying their part and then add in some extra for profit for the owner and that's how they come up with the cost of the rent. Nothing is free.

That's why the actual cost of buying is cheaper than renting. If someone purchased a house the same size/condition as a comparable apartment the monthly mortgage/insurance/taxes would be significantly less than the rent on the apartment simply because there aren't any middlemen trying to make a profit on the purchase other than the mortgage company.

 

[ponyboy]

It really all depends on what you want. If you're happy with renting and paying someone else to deal with the maintenance and upkeep then keep on renting. The costs are higher but all you're doing is paying someone else to do things so that it saves you time. You can always make more money but you can never make more time and time is the most important thing that money can buy. It's your money, you make it, don't let other people influence you to do things that you don't want to do with the money you worked for. If you're happy with what you're doing and your plan for the future then stick to it. Who cares what anybody else says?

 

[barkley]

That's why the actual cost of buying is cheaper than renting. If someone purchased a house the same size/condition as a comparable apartment the monthly mortgage/insurance/taxes would be significantly less than the rent on the apartment simply because there aren't any middlemen trying to make a profit on the purchase other than the mortgage company.

I think that can greatly depend on the rental market in a given area-just like a house is only worth what someone will pay to buy it, a rental property can only gross what the local market will bear.

the last time we rented it was in the same neighborhood as we had just sold in- pretty much identical home to the one we owned. there's no way of knowing how much the mortgage payment (principal and interest only) was on the place (varies so much by how much down/pmi possibly/interest rate...) or what was paid for insuring the home, BUT I do know how much the property taxes ran, and what the average minimum upkeep for a homeowner or landlord ran at the time.

if our landlord was making any money off it I would be greatly surprised-and if they are renting it now they would likely not be breaking even. when we rented a full 40% of our rent would have gone to cover just the property taxes, and another 15% to the contracted maintenance/included in rent items that was the minimum expectation for rental homes in the area (pest service, pool service, alarm company, water/sewage, garbage). given how recently the homes had been built-unless she had purchased it outright (new from builder-not increased price from a resale) or put down a significant down payment, with the prevailing interest rates at the time she had to be VERY close to just covering her expenses. but that's because the rental market dictated how much a place could rent for-didn't make a difference what the landlord's costs were. for the heck of it I just looked the place up on-line, property taxes alone there have increased 25% since we moved-rental prices are only 5-10% higher than what we paid several years ago.

I know folks who own outright in rental markets that are pretty good-so they can afford to rent their place out, cover expenses, maintain the places and make a decent profit. know others who have had to move for job relocations and figured they could cash in renting their existing home out to take advantage of rebounding home prices only to find out that their local rental markets don't yield the kind of rent that comes near to covering their expenses so it becomes a "do we take a one time hit on the selling price or a monthly hit on paying the shortfall?' (and realtors will advise in both areas we've lived in to take the one time hit b/c the minute a house goes from having been strictly 'owner occupied' to a rental the resale value drastically decreases).

 

[gotomu212]

So, who exactly do you think is paying for the property taxes and maintenance? Renter's insurance is cheaper than homeowner insurance because the apartment building is insured by the owner and renter's insurance only covers the contents of the apartment. All of these costs (taxes, maintenance, building insurance, etc) are all passed down to the renter, so every renter is paying their part and then add in some extra for profit for the owner and that's how they come up with the cost of the rent. Nothing is free.

That's why the actual cost of buying is cheaper than renting. If someone purchased a house the same size/condition as a comparable apartment the monthly mortgage/insurance/taxes would be significantly less than the rent on the apartment simply because there aren't any middlemen trying to make a profit on the purchase other than the mortgage company.

Except that a lot of commercial landlords have interest only loans. For them to turn a profit your rent only has to cover the interest payment, property tax (which is very often lower on high density dwellings), commercial insurance which is lower as it doesn't cover personal property, and a set aside for maintenance and repair. I have absolutely conceded that you do may a portion of these costs in your rent.

However my property tax is $12,500/year, in a good year main/repair is $12,000 (yard, replacement of some appliance, minor painting, general upkeep). I'm out $2,000 a month BEFORE any mortgage.

 

[gotomu212]

One other thing to keep in mind your investment return isn't jut the amount of money you sold the house for minus what you bought the house for if you had a mortgage. You have to deduct the interest.

For example say you bought a house for $300k, but only put $100k down and financed $200k. Using today's extremely low 3.9% interest rate on a 30 year mortgage and you actually paid out $340,500 (not including property tax and insurance). So you need to sell that house for $440,500 JUST TO BREAK EVEN with the amount you spent over the 30 year life of your house. And, if you move earlier you need more of an increase in sales price since you pay more interest in the early years of your mortgage. (There is a tax benefit to the interest write off.)

If you're looking for investment return I'd argue that in a lot of markets right now it would make more money if you rented and then put whatever you would have spent on maintenance and repairs each month into an investment account, retirement account, savings account, whatever. At the end of 30 years you would have a tidy nest egg based just on the amount saved with maintenance.

 

[barkley]

However my property tax is $12,500/year, in a good year main/repair is $12,000 (yard, replacement of some appliance, minor painting, general upkeep). I'm out $2,000 a month BEFORE any mortgage.

PREACH IT!!!

even when you own a home outright it's still not a cheap proposition. when discussions come up with friends/neighbors about how they SO want to pay off their mortgages they will inevitably say "and then instead of writing that check for $$$$ a month to the bank i'll be writing it to myself", we gently ask if their mortgage payment each month covers their property taxes and homeowner's insurance premiums b/c if it does then they may be VERY surprised at what they will actually net in monthly savings with their payoff (which can be further reduced by any tax write offs lost).

don't get me wrong- I HATE paying interest (at this point refuse to do it) and I LOVE being mortgage free, but there's no way I'm able to pay myself the identical amount we made as payments (and with the rental market here I couldn't rent our home out for what owning it costs us).

 

[longboard55]

At some point buying will save you in retirement because you beat inflation. Our house with taxes utilities mortgage (none) and association fees cost me around $500 a month. To rent it would be over $3000. They key is we lived here for 30 years. 15 year mortgages are a great thing

 

[disykat]

One other thing to keep in mind your investment return isn't jut the amount of money you sold the house for minus what you bought the house for if you had a mortgage. You have to deduct the interest.

For example say you bought a house for $300k, but only put $100k down and financed $200k. Using today's extremely low 3.9% interest rate on a 30 year mortgage and you actually paid out $340,500 (not including property tax and insurance). So you need to sell that house for $440,500 JUST TO BREAK EVEN with the amount you spent over the 30 year life of your house. And, if you move earlier you need more of an increase in sales price since you pay more interest in the early years of your mortgage. (There is a tax benefit to the interest write off.)

If you're looking for investment return I'd argue that in a lot of markets right now it would make more money if you rented and then put whatever you would have spent on maintenance and repairs each month into an investment account, retirement account, savings account, whatever. At the end of 30 years you would have a tidy nest egg based just on the amount saved with maintenance.

Maybe in some markets. In many markets, mortgage + maintenance + taxes = less than rent. Yes, you have to do the math, comparing what it cost to rent vs. all the costs of a house. For us it was a win/win. Our mortgage and expenses were less than rent every year except the year we chose to do some optional upgrades. Now that we only have expenses with the mortgage paid off it's even more of a win.

 

[barkley]

At some point buying will save you in retirement because you beat inflation. Our house with taxes utilities mortgage (none) and association fees cost me around $500 a month. To rent it would be over $3000. They key is we lived here for 30 years. 15 year mortgages are a great thing

again-it depends on where you live.

we own our home outright as well but I could rent a comparable house for less than our monthly costs in taxes, utilities, neighborhood fees (our version of association costs) as well as what homeowner's insurance adds up to (with only about $100 to set aside a month for upkeep).

I get inflation-but as I posted earlier, the rental I lived in several years ago is in a rental market that's only had a 5-10% increase in TOTAL overall rental rates since we rented (9 years ago) BUT the property tax rate ALONE for that area has risen 25%. so if I still rented there my rent would have increased from 1997 to a current rent of $100- $200 more in total per month while as an owner my property taxes would have increased incrementally over the past 9 years to just shy of $200 more per month years ago (and over the course of 9 years I can guarantee there would have been some kind of repairs or appliance replacements or other additional upkeep costs associated with home ownership).

yup-in some markets the rental rate costs have/are rising faster than the rate of inflation-in others it's in no way kept up with the average basic costs of single family home ownership.

 

[tvguy]

Except that a lot of commercial landlords have interest only loans. For them to turn a profit your rent only has to cover the interest payment, property tax (which is very often lower on high density dwellings), commercial insurance which is lower as it doesn't cover personal property, and a set aside for maintenance and repair. I have absolutely conceded that you do may a portion of these costs in your rent.

However my property tax is $12,500/year, in a good year main/repair is $12,000 (yard, replacement of some appliance, minor painting, general upkeep). I'm out $2,000 a month BEFORE any mortgage.

It certainly it be a region difference. Around here in Northern California, the Business Journal did a piece on how the recession impacted apartment sales. 60% here in the last 5 years have been cash sales. According to Realtor.com, the average minimum down payment required by banks is 20% of the purchase price, so an interest only commercial loan is probably pretty rare.
Generally speaking, a renter is covering all the landlord's expenses, mortgage and interest, upkeep, insurance, taxes and profit. People rent because they don't want to own, or can't come up with the down payment. Like I mentioned earlier, rents are so high right now, even folks that only plan to live here 2 years are buying because the payment and upkeep are so much less than rent.

 

[Dentam]

If you are uncertain about staying in your area long term, DO NOT buy a house. I bought a house and less than 3 years later got a job offer I couldn't refuse in another state. In the meantime, the housing market crashed and I had to pay a property manager to rent my house out for another 3 years before I could sell it... for a loss. Not to mention the HVAC unit went kaput two weeks after I moved - to the tune of 5k to replace it. Yeah, no one can convince me that home ownership is a good idea for everyone. I happily rent now.

 

[North of Mouse]

This was exactly what my financial planner told me. He said that buying a home isn't the investment it once was. Buy a home if you want to have a garden to dig in or if you like the idea of renovating to meet your specifications but don't buy because you think it's an investment.

Well, glad we don't listen to financial planners in regards to house ownership! In some instances, as pp's have stated, renting is better - especially, it you move around a lot or for any reasons you are not stable to an area, or be able to handle ownership.

We definitely have 'equity' in our home built 15 years ago, mortgage paid off for 10 years, and now could sell between $500 - $600 K. Our maintenance, taxes, and ins. is about $4 K a year. Have really had no maintenance costs yet, as we built it relatively maintenance free. Dh keeps up small stuff. We both love our huge yard and flowers (2 1/2 acres woods & landscape) so maintenance is just a work of love for us with mental and physical 'benefits'.

Really, not counting the equity, we still live much, much cheaper than renting (especially the last 10 yrs. - but even throughout our lives). Our mortgages have not equaled what we would have had to pay rent for where we've lived.

So, that statement of 'not' being an investment is false in most cases - with some exceptions. We know plenty others like us.

And, yes, if you think you are not paying taxes, or ins., you are wrong. We have friends that have rental houses and they definitely factor those costs in their rentals - just sort of 'out of sight, out of mind' for renters - in some cases, sort of like DDP for some people - may not be 'worth' it, but paid in advance, and don't have to 'think' about it!

 

[ponyboy]

Except that a lot of commercial landlords have interest only loans. For them to turn a profit your rent only has to cover the interest payment, property tax (which is very often lower on high density dwellings), commercial insurance which is lower as it doesn't cover personal property, and a set aside for maintenance and repair. I have absolutely conceded that you do may a portion of these costs in your rent.

However my property tax is $12,500/year, in a good year main/repair is $12,000 (yard, replacement of some appliance, minor painting, general upkeep). I'm out $2,000 a month BEFORE any mortgage.

Yes a lot of them use interest only loans but usually only for cash flow reasons and the interest only part doesn't last forever. Rent costs can't be based upon an interest only payment because when the principal payment kicks in either rent costs would have to increase significantly or they lose money, which isn't going to happen. So from the beginning the renter will be paying enough to cover the standard loan repayment amount including principal and interest.

I agree that commercial insurance on the dwellings only is cheaper but in addition to covering their portion of the coverage cost through their rent, most renters will also purchase an additional policy to cover their personal property which likely negates the savings on the dwelling only coverage they're paying through their rent.

In regards to your property taxes and maintenance costs, you're comparing apples to oranges. My property taxes and maintenance costs are far above the costs associated with a standard apartment/rental unit but it's also not comparable in size and/or amenities to an apartment either. That's like leasing a Kia is cheaper than buying a Porsche. Of course it is, but it's not the same thing.

 

[ponyboy]

Here's an example, also take into account that I live in an area with some of the lowest housing costs in the nation. My best friend was renting a 3br 2ba house for $900/mo which is about the going rate in the area he was living. He was also paying for renters insurances but I don't know the cost but we'll say it was $50/mo for a total of $950. I owned a comparable house in the same area about 3 blocks away which I recently sold to him. His mortgage including taxes and insurance are now about $550. $400 savings a month is more than enough to cover normal repair and maintenance on the house, so it's considerably cheaper for him to purchase rather than rent. The nearest comparable apartments for 3br are $900-1375/mo.

 

[Dentam]

In my current area homes sell for an average of half a million. The majority of people in this city rent. There is a housing shortage since this has become one of the most popular cities to move to in the country. When I applied to rent my current place, there were over 60 applications and they chose me. I am lucky my rent hasn't been raised as most of my coworkers are dealing with that. Pay is also not in line with the cost of living so most don't have the opportunity to save for a house, especially at current prices. I know many natives are leaving the area due to the increase in cost of living. I pay $1,200 for a 2 bedroom - most are $1,500 and up in this area.

 

[longboard55]

again-it depends on where you live.

we own our home outright as well but I could rent a comparable house for less than our monthly costs in taxes, utilities, neighborhood fees (our version of association costs) as well as what homeowner's insurance adds up to (with only about $100 to set aside a month for upkeep).

I get inflation-but as I posted earlier, the rental I lived in several years ago is in a rental market that's only had a 5-10% increase in TOTAL overall rental rates since we rented (9 years ago) BUT the property tax rate ALONE for that area has risen 25%. so if I still rented there my rent would have increased from 1997 to a current rent of $100- $200 more in total per month while as an owner my property taxes would have increased incrementally over the past 9 years to just shy of $200 more per month years ago (and over the course of 9 years I can guarantee there would have been some kind of repairs or appliance replacements or other additional upkeep costs associated with home ownership).

yup-in some markets the rental rate costs have/are rising faster than the rate of inflation-in others it's in no way kept up with the average basic costs of single family home ownership.

everyone loves to bash californa, but we have prop 13. My taxes go up a maximum of 2% per year. I am only paying $80 a month more in taxes now than I paid in 1986.

 

[mnrose]

As a landlord, I can tell you flat out that I price my properties for rent at (a) what the market will bear and (b) to cover my costs. If I can't cover my costs and make a decent return on my equity, I'm not buying the property. Duh. In some cases, the people renting could definitely "buy" the house for less than they are paying me in rent (and that's factoring in property taxes and insurance), but in some cases, they are renting for less than it would cost you to buy. Just depends on so many factors.

But, I flat out guarantee you that your landlord (if you rent) isn't doing it to lose money. :-D

 

[tvguy]

If you are uncertain about staying in your area long term, DO NOT buy a house. I bought a house and less than 3 years later got a job offer I couldn't refuse in another state. In the meantime, the housing market crashed and I had to pay a property manager to rent my house out for another 3 years before I could sell it... for a loss. Not to mention the HVAC unit went kaput two weeks after I moved - to the tune of 5k to replace it. Yeah, no one can convince me that home ownership is a good idea for everyone. I happily rent now.

Great point. YOUR lifestyle has to be a part of the decision process. And there is risk with home ownership. But there are rewards. Renting you will never pay for a HVAC unit, but you'll never benefit from appreciation either in good times.

 

[barkley]

everyone loves to bash californa, but we have prop 13. My taxes go up a maximum of 2% per year. I am only paying $80 a month more in taxes now than I paid in 1986.

no bashing from me-just the facts re. homeownerships vs. renting where we previously lived there.

while I've no desire to move back I LOVE what California provided me/continues to provide me with-(at minimum)

a house that tripled in value w/in 7 years-but prop 13 kept my taxes from drastically increasing, as well as wages and a pension that exceeded the norm across the country for my chosen profession-

all of which I greatly appreciation now that I live in another state wherein-

my house is valued at almost the identical taxable rate my California home was-but my property taxes are more than 50% lower per year than what I paid in California 12 years ago, which along with no state income tax on my/dh's California pensions (unlike when we lived IN California) more than compensates us now and for decades to come despite the lack of prop 13.

 

[Grmnshplvr]

I really thought renting was the way to go for us, our rent was pretty cheap for this area. We lived there for 15 years. The landlord was very laidback, we had 2 kids, 2 dogs, things were perfect. In April we got a certified letter that he was in a bad situation financially and was selling the house. We had 30 days to find another rental in our school district that would allow 2 large dogs (one being a german shepherd and often on the "bad breed" list) It was not easy and more stress than I care to even think about. We did find something but it honestly scared me enough to never want to go through that again. our plan now is to buy after our year lease is up at our new place. This place does not feel like home as it is and I cannot fathom getting another notice that we have 30 days to find a place. it is terrifying. With that said, if I didn't have 2 kids and 2 dogs to think about I'd be happy to just continue renting. I dont have to keep up with anything in the yard, or maintenance wise so I have no worries there but I'm looking forward to having our own home next year.