Do you rent or own?

[Bouncing Soul]

Look at an amortization table and compare interest payment to rent over time. For most people, who don't put a big down payment, they're really close for the first several years. Unless you stay for a while buying a SFH basically costs you the risks associated with highly leveraged consumption without a strong likelihood of more appreciation than the costs associated with buying/selling a house...in other words, the profits go to the underwriters, real estate agents and title/escrow cos, and the city/county/state, and the risks to you.

We had a down payment out on new a house in SoCal in 2005. At the last minute I realized how stupid this was and we got out of the deal. That move saved us a foreclosure, or loss of about $1/4mil, and also would've stood in the way of an amazing professional opportunity for my wife that required a move out of the area. Buying a house at the wrong time can be devastating.

I've known several people that bought a house and rented rooms, or a multi-family building and lived in one, and it is a good strategy if you want to put down roots for some reason, or real estate is your chosen path to wealth. But if the payments are a big chunk of your cash flow, they still might keep you from opportunity.

We own because we found a unique acreage property, it cost less than 1yr of our gross income (so we could afford to move without selling), was bought near the bottom of the last real estate cycle and there are still days I wonder if we should've just rented. I'm sure if we owned it free and clear we'd feel a bit different, and right now I'm considering some pretty drastic options to get there ASAP.

 

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[Bouncing Soul]

I would suggest rent, a 30 yr commitment to pay for a house sounds crazy to me

If someone buys a house and plans to make payments on it for 30 years, yes, they are crazy.

But buying a house does not mean one has to have a mortgage, this is a lie society has sold.

The Swiss have very low rates of home ownership yet are among the richest people in the world, so another lie busted.

 

[eekern]

Renting with my girlfriend (1400$ /m) we are saving to buy eventually, but does not stress about it. All my friends are tied down to an apartment but we are living in our third town exploring the country before we decided where to live...

 

[ChasingPaper]

I don't see a point in renting.. its like burning money

Im 20 and I bought a duplex, everyone else pays my rent and I live for free. This is fastlane because the $400.00 I was paying in rent is now going towards my fastlane pursuits and future multi family units.

That's my current plan, and i'm also your age. May I ask what the numbers look like? As in % you put down, etc. This is my next move.

 

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[GlobalWealth]

I need something that is wholly my own.

You never own. You only rent from the govt. Stop paying property tax and you find out who really owns very quickly.

 

[ChasingPaper]

You never own. You only rent from the govt. Stop paying property tax and you find out who really owns very quickly.

Yeah, but I still think it's better then throwing $800 into someones else's net worth. Just depends on everyone's situation, i'm personally taking the REI route. My career is also Real Estate oriented so I have ran numbers quite a bit. Just want to see some examples of some other peoples numbers.

 

[Greg R]

I've determined I can't handle roommates for much longer. Because I can't/don't want to pay $1,400/month to live in a basement, I've concluded that I have to move to another city with more affordable housing.

Just curious if you guys/galls rent or own (with mortgage still counts), why you've chosen that path and if you could go back (in the case of owning) what you'd do differently? etc.

If I go the ownership route I'm not taking out a huge/crippling mortgage loan.. definitely under $100k with payments of $350-$550/month.

I like the idea of purchasing a new property every few years, and renting out the previously vacated property in perpetuity.

Not yet at the stage where I can buy an entire apartment block, but that would be ideal and live in one of the units

Number one thing is I just have to live alone, so I'm interested in to all of your living situations.

Cheers!

I have bought lived and rented two homes in the Chicagoland area already and am about to do a third on in February. I love this process. I love being a landlord too. I am living for free off my rental income and thoroughly enjoy it. I loved the process so much, I wrote an article about it called "How I Turned My Home Into A Rental." As of right now, I only have about 1 hour of accounting to do per month so it's pretty passive for the amount of money I am getting in.

 

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[Shades]

You never own. You only rent from the govt. Stop paying property tax and you find out who really owns very quickly.

Thats one of those things you could say about a lot of things. Its not really a reality thats going to happen. You aren't going to stop paying property taxes. Especially in this topic where we are comparing renting to buying. If a person couldnt pay property tax they surely cant pay rent.

You could stop paying your mortgage completely and still live in your home for likely 1-2 years while the foreclosure process plays out. That sounds really fastlane. Free living!

You buy and its yours. You pay the bills and you don't have to worry about what you do in your home. You want a dog? buy one. I dont have to worry about what anyone else is going to think about it. Or worse yet, charge me extra a month for.

You rent and in my head im always thinking, ugh when is this Ahole gonna want to do an inspection. Can I do this can I do that? Should I call and ask?

I would live in a RV full time before I paid someone elses property off for the luxury of them being able to control any aspect of my life. Thats not the type of freedom I prefer.

 

[LibertyForMe]

I think a lot of people here are free agents, but us old married folk can't always focus 100% on what makes the most sense financially. We have other little birds chirping in our ears...

 

[GMJimmy]

It always depends on the circomstances. Also on cost of rent vs mortgage, interest rates etc.

In my home country mortgage interest rates are above 9% and you have to pay at least 40% upfront or provide additional security (such as another property, but in that case interest rates are even worse).

A nice 2 bedroom flat would cost about 100.000. You pay 40000 upfront and take 60000 mortgage for 25 years, monthly payments are 800 (real life example, my sister's flat).

You can rent the same flat for less, between 600-750/m, without the 40000 upfront cost, no RE taxes and no maintenance.

But still everybody is aiming for an own flat...

I have bought the properties that I'm renting out (1 for a very good 10year mortgage, the rest for cash), and I'm renting the house I live in. Rent is flexible. Right now I need 5 beds for the children and the live-in nanny. In a few years the nanny will go. In 10 years the children will start to move out. Then I can rent a smaller one. A lot easier than selling and buying.

 

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[biophase]

Yeah, but I still think it's better then throwing $800 into someones else's net worth. Just depends on everyone's situation, i'm personally taking the REI route. My career is also Real Estate oriented so I have ran numbers quite a bit. Just want to see some examples of some other peoples numbers.

Buying an investment property vs. a primary residence is two completely different things. So the argument on this thread needs to more specific.

I own a condo free and clear in the Chicagoland area. Even owning this condo with no mortgage, I pay $850 a month in HOA and taxes. There is no mortgage to pay down so you could say that I am throwing away $850 a month for nothing owning this condo if I lived there. However I have it rented out for $1900/mo. So now the numbers look completely different.

I personally would never buy a $1 million dollar home for myself. But, I am looking at Airbnb stats and in this area, this home can fetch $1000/night on Airbnb. So now the numbers on this home look completely different to me.

Now if we are talking about primary residence. I have not owned a primary residence for over 8 years, just been renting. If you really do the numbers and view it as an investment vs. personal feelings on owning, owning your primary is not a good deal. To the people who talk about throwing away their rent money, I challenge you to post the numbers with an amortization table, taxing savings, etc... to backup your claims. You can use 1% return on your down payment money.

BTW, here is a strategy that some of you may want to look at:
Let's say you wanted to live in a $1m home and you had $200k cash. If you bought that home, you would have an $800k mortgage at 3%. Your payment would be $3300. Let's say with taxes if comes out to $4000/mo.

Instead of buying the $1m home, you decide to purchase 10, $100k condos with $20k down each. These condos all cashflow $350/mo. Now you have cashflow of $3500/mo. Now you go driving that same neighborhood of $1m homes and you rent one for $3500/mo.

Usually as the homes get more expensive, the rent vs price of the home decreases. So you can usually get more house for your money by renting. A $100k condo may rent for $1000/mo, but a $1m home does not rent for 10x, or $10,000/mo (This is a $10k/mo rent home worth about $3m - http://www.zillow.com/homedetails/6215-E-Exeter-Blvd-Scottsdale-AZ-85251/2104391067_zpid/). So you can easily get into $1-$5m homes for much less than buying them, by buying lower priced properties to cashflow into renting the bigger homes.

 

[Bigguns50]

My Wife and I own with no mortgage. It works for us.

I bought the house for $25,000. Put $30,000 into it. Appraised for $130,000 ( I don't know if it will sell for around this...haven't researched). BUT, we've been here 6 yrs, so taxes, repairs, heating/cooling...I don't know if we'll be that much ahead when we sell.

It IS VERY NICE not having a rent or mortgage payment though. Like I said...it works for us.

 

[MyronGainz]

Just invest your cash surplus and rent. 2 floor loft in the middle of the city

 

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[SK2kev]

I own (with a mortgage that is half the value of the house). I hate that I owe money on the house. I'm considering selling the house to my corp and renting it from the corp, at least that way the interest is tax deductible and the payments are made with pre-tax dollars.

With a wife and 3 young kids, having a solid home base is important for us. It's funny how much of an impact your decisions have on you later in life. I wish I'd read this book 15 years ago and had a functional brain at the time...

 

[Nicko]

I own (with a mortgage that is half the value of the house). I hate that I owe money on the house. I'm considering selling the house to my corp and renting it from the corp, at least that way the interest is tax deductible and the payments are made with pre-tax dollars.

With a wife and 3 young kids, having a solid home base is important for us. It's funny how much of an impact your decisions have on you later in life. I wish I'd read this book 15 years ago and had a functional brain at the time...

Not sure about the rest of the world, but you can end up in a lot of trouble with the tax authorities if you rent your own property, and claim deductions whilst it's actually your principle place of residence. Whilst it might be at 'arms length' through a corporation it's still highly questionable (over here at least). And besides, you have all of the costs with transferring ownership as well (which here are substantial and really not worth it).

 

[Deleted35442]

I've determined I can't handle roommates for much longer. Because I can't/don't want to pay $1,400/month to live in a basement, I've concluded that I have to move to another city with more affordable housing.

Just curious if you guys/galls rent or own (with mortgage still counts), why you've chosen that path and if you could go back (in the case of owning) what you'd do differently? etc.

If I go the ownership route I'm not taking out a huge/crippling mortgage loan.. definitely under $100k with payments of $350-$550/month.

I like the idea of purchasing a new property every few years, and renting out the previously vacated property in perpetuity.

Not yet at the stage where I can buy an entire apartment block, but that would be ideal and live in one of the units

Number one thing is I just have to live alone, so I'm interested in to all of your living situations.

Cheers!

I'd think @JustAskBenWhy would back me up on this but it VARIES. What I mean is, it all depends on location. As @biophase demonstrated, renting can be pretty cheap (that house is F*cking sick). Must be at least at the $3MM+ mark.

Don't know appreciation rates in this area, but that's a good deal. Simply put, some places are better to rent, some are better to own. I'll write an article on this sometime. This article explains what I'm getting at very well: http://twocents.lifehacker.com/should-i-buy-a-home-or-just-keep-renting-1699277766

 

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[SK2kev]

Not sure about the rest of the world, but you can end up in a lot of trouble with the tax authorities if you rent your own property, and claim deductions whilst it's actually your principle place of residence. Whilst it might be at 'arms length' through a corporation it's still highly questionable (over here at least). And besides, you have all of the costs with transferring ownership as well (which here are substantial and really not worth it).

I appreciate the reply. Here's a snippet from my accountant.

"There may be very minimal short-term benefits of selling your house to the corporation – being able to expense your mortgage interest, insurance, property taxes, etc. The benefit is reduced because the rent would have to be paid from you, to the corporation, at fair market value and the corporation would end up getting taxed on that rental income (at a higher rate since it is considered passive income).

The biggest drawback in my mind is the fact that you’re giving up your principal residence exemption – where any capital gains you realize on the sale of your home would be tax-free. Now 10-20 years down the road when you sell the house, there is a fully taxable capital gain."

I'll have to sit down and discuss this with them before I do anything, but I sure love looking for angles!

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[Dan44]

I'd think @JustAskBenWhy would back me up on this but it VARIES. What I mean is, it all depends on location. As @biophase demonstrated, renting can be pretty cheap (that house is F*cking sick btw). Assuming all things stay fixed for, IDK, 20 years? 10k per month for 20 years. We're only talking $240K. Let that sink in, 20 YEARS, 1/4 of an average lifetime. That house is at least at the $3MM+ mark.

Don't know appreciation rates in this area, but that's a good deal. Simply put, some places are better to rent, some are better to own. I'll write an article on this sometime. This article explains what I'm getting at very well: http://twocents.lifehacker.com/should-i-buy-a-home-or-just-keep-renting-1699277766

10k per month for 1 year is 120k for 1 year. Just saying.

 

[GIlman]

Ok, here's the thing. Property ownership is not all created equal. When you hear someone say something like "My home is my greatest asset"...it just shows their ignorance, pure and simple. Some property can be an asset to you (more below), but you should not consider your home one (also more below).

The home most people live in is their greatest SPECULATION...you will only know IF it brings profits or losses after you sell it, and subtract ALL of your costs during the time of ownership (including taxes, insurance, repairs - sometimes extremely costly, improvements - also sometimes extremely costly, etc, etc...oh and don't forget the slap at the end of a realtors commission which is usually 6% of the sale price - paid by the sellor)...Therefore by any reasonable definition your home is wild SPECULATION...with lots of variables.

And...this does not include the opportunity cost of the capital you had locked in all these years.

You see, here is the thing. A home has no DEFINED value except at the moment you buy it and the moment you sell it. Even though you have something tangible to look at, liquidity is uncertain and the price that you can fetch for it when you sell is completely unknown.

Here's the honest to goodness truth, the only way to know the value of your home it to SELL it and see what some individual in the market will pay you for it at that moment in time. It doesn't matter what your appraisal said, or what your neighbor next door sold their identical house yesterday...

So, who care's what someone estimates your home is worth today...Markets go up, markets go down...and only the day you close will you know anything....namely what YOU got from it all. This is so similar to stocks its crazy...I mean how many people have you known that have told you how much money they had because they had $100,000 of some stock (Say AMD @ $40 a share)...but stock just like houses are not money. They are value proxies, and they are market driven. You can spend years holding them, and still lose or maybe even just break even (e.g. AMD @ $4 a share 3 years later at a significant loss - ask me how I know).

Ok, back to the first statement ... "Property ownership is not all created equal." ... the reason I say this is because it all depends on the CASH flow.

If you have a property that generates revenue, as long as that revenue exceeds ALL of your costs, then this property is an asset to you. If not then I hate to say it but this property is a liability to you plain and simple, because unless you pump IN money from some outside source this property will decay in value as an exponential pace until it is simply taken away from you.

Why, because you don't pay the bills, and people start to dump liens on your property, and each lien represents someone inline to take a piece of any profits before you do. Once your liens exceed your "equity" at sale, you my friend are under water. Oh, and like @GlobalWealth said the gov will be right inline with liens on your property if you don't pay your rent...err taxes..

So what property IS an asset, well anything that brings in positive, self sustaining reliable cash flow...i.e. excess in the bank after all expenses.

Am I opposed to owning a home, nope, I own my own (or at least rent it from the bank and government)...but I have no doubts about the nature of the transaction. Whether renting or owning, both are Expenses for personal maintenance. The real difference, then, is with renting there is no speculation component, it is a straight line expense. With owning you have chips on the table (down payments and principal payments), and when the roulette wheels stops you may win or lose some (or all) of your chips...but you won't know until the wheel is fully stopped.

---------------

As an aside, this is insight from over 30+ years of personal experience and observation. My family has been heavily involved in RE investing ever since I can remember...I have seen countless transactions including personal residences, single family homes, multi family housing, commercial, and lots of raw land...and what I have seen over and over again is ... real estate is a market, not a hard asset...value is relative to time and the market, and you can make great money, break even, or even lose money on something you have held. And, one sudden big expense (e.g. a leaky roof or bum foundation) can turn the tables on you.

 

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[JustAskBenWhy]

If your home is your biggest asset, frankly - you're F*cked...

Having said that, there are a couple of different elements to consider. There's the macro picture, and the micro:

On the macro level, we live in a fractional reserve fiat monetary system which operates on debt. Debt is the lever, which means that if you are not using it to put yourself in the flow of money, there are many benefits of living in this type of monetary system that are not available to you...by definition. This means that while not everything is worth owning (in fact most things are not), it is in principle a good idea to own property, and to utilize debt prudently to do so...

On a micro scale, if you can't balance a checkbook, you shouldn't own property. It is indeed a responsibility, and you must be ready for it.

 

[SK2kev]

Ok, here's the thing. Property ownership is not all created equal. When you hear someone say something like "My home is my greatest asset"...it just shows their ignorance, pure and simple. Some property can be an asset to you (more below), but you should not consider your home one (also more below).

The home most people live in is their greatest SPECULATION...you will only know IF it brings profits or losses after you sell it, and subtract ALL of your costs during the time of ownership (including taxes, insurance, repairs - sometimes extremely costly, improvements - also sometimes extremely costly, etc, etc...oh and don't forget the slap at the end of a realtors commission which is usually 6% of the sale price - paid by the sellor)...Therefore by any reasonable definition your home is wild SPECULATION...with lots of variables.

And...this does not include the opportunity cost of the capital you had locked in all these years.

You see, here is the thing. A home has no DEFINED value except at the moment you buy it and the moment you sell it. Even though you have something tangible to look at, liquidity is uncertain and the price that you can fetch for it when you sell is completely unknown.

Here's the honest to goodness truth, the only way to know the value of your home it to SELL it and see what some individual in the market will pay you for it at that moment in time. It doesn't matter what your appraisal said, or what your neighbor next door sold their identical house yesterday...

So, who care's what someone estimates your home is worth today...Markets go up, markets go down...and only the day you close will you know anything....namely what YOU got from it all. This is so similar to stocks its crazy...I mean how many people have you known that have told you how much money they had because they had $100,000 of some stock (Say AMD @ $40 a share)...but stock just like houses are not money. They are value proxies, and they are market driven. You can spend years holding them, and still lose or maybe even just break even (e.g. AMD @ $4 a share 3 years later at a significant loss - ask me how I know).

Ok, back to the first statement ... "Property ownership is not all created equal." ... the reason I say this is because it all depends on the CASH flow.

If you have a property that generates revenue, as long as that revenue exceeds ALL of your costs, then this property is an asset to you. If not then I hate to say it but this property is a liability to you plain and simple, because unless you pump IN money from some outside source this property will decay in value as an exponential pace until it is simply taken away from you.

Why, because you don't pay the bills, and people start to dump liens on your property, and each lien represents someone inline to take a piece of any profits before you do. Once your liens exceed your "equity" at sale, you my friend are under water. Oh, and like @GlobalWealth said the gov will be right inline with liens on your property if you don't pay your rent...err taxes..

So what property IS an asset, well anything that brings in positive, self sustaining reliable cash flow...i.e. excess in the bank after all expenses.

Am I opposed to owning a home, nope, I own my own (or at least rent it from the bank and government)...but I have no doubts about the nature of the transaction. Whether renting or owning, both are Expenses for personal maintenance. The real difference, then, is with renting there is no speculation component, it is a straight line expense. With owning you have chips on the table (down payments and principal payments), and when the roulette wheels stops you may win or lose some (or all) of your chips...but you won't know until the wheel is fully stopped.

---------------

As an aside, this is insight from over 30+ years of personal experience and observation. My family has been heavily involved in RE investing ever since I can remember...I have seen countless transactions including personal residences, single family homes, multi family housing, commercial, and lots of raw land...and what I have seen over and over again is ... real estate is a market, not a hard asset...value is relative to time and the market, and you can make great money, break even, or even lose money on something you have held. And, one sudden big expense (e.g. a leaky roof or bum foundation) can turn the tables on you.

Very well put, thanks for that. I understand your message completely but often have a hard time explaining it to others. You've made it easy.

Sent from my SM-N910W8 using Tapatalk

 

[GIlman]

I appreciate the reply. Here's a snippet from my accountant.

"There may be very minimal short-term benefits of selling your house to the corporation – being able to expense your mortgage interest, insurance, property taxes, etc. The benefit is reduced because the rent would have to be paid from you, to the corporation, at fair market value and the corporation would end up getting taxed on that rental income (at a higher rate since it is considered passive income).

The biggest drawback in my mind is the fact that you’re giving up your principal residence exemption – where any capital gains you realize on the sale of your home would be tax-free. Now 10-20 years down the road when you sell the house, there is a fully taxable capital gain."

I'll have to sit down and discuss this with them before I do anything, but I sure love looking for angles!

Sent from my SM-N910W8 using Tapatalk

One other thing to remember, if you depreciate any thing, including real estate, and later sell it above the depreciated value, then you have to pay capital gains on the difference between the sales prices and the depreciated basis of the property.

So say you buy a house for 200 K, hold it for 39.5 years, and depreciate the entire thing to $0 (we will ignore that only the structure would be depreciated not the value of the land - so you can't truly depreciate to $0).

Now we sell this property for $400 K. The capital gain on this is the full $400K. That's a huge chunk of coin.

The scary side of this is that with all the wacky political types out there who knows what the actual capital gains rate will be in 39.5 years. If the tax savings on your income tax is less than the capital gains rate at the moment you sell, well you just got screwed.

Now to the question, do I depreciate properties when I can. Yes I do, the reason is because I hope and believe that freeing that money from the property will give me more return by reinvestment compounded by time than the risk of having to repay it. This is the time value of money.


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[Rawr]

Some interesting insights by Kevin O'leary on renting:

Wow, something just clicked when I watched it. No condos for me.

 

[JustAskBenWhy]

One other thing to remember, if you depreciate any thing, including real estate, and later sell it above the depreciated value, then you have to pay capital gains on the difference between the sales prices and the depreciated basis of the property.
Sent from my iPhone using Tapatalk

Not necessarily. There are many strategies to off-set capital gains. We buy RE for a reason, and this is one of the reasons...

 

[EvanOkanagan]

I own 4 homes (2 single family and 2 multi-family residential homes).

I don't live in any of these... I rent a 1 bedroom condo downtown.

 

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[GIlman]

Not necessarily. There are many strategies to off-set capital gains. We buy RE for a reason, and this is one of the reasons...

Definately, but you can't just take it in cash if it is a commercial investment.

I get that you can manipulate the primary residence exclusion, do a 1031 like-kind exchange, offset the gain with a loss somewhere else, etc... But there is not always a good option to get out of the capital gains without some sort of financial gymnastics involved...and the end result may result a more property not cash in the bank. Doesn't mean don't invest or not to depreciate, just need to be aware of the gotchas and required loopholes and their tradeoffs.

 

[Andrew Ward]

We rent at the moment. It's more a flexibility thing really. I like the idea of being able to move somewhere different in a heartbeat rather than being tied to a lengthy (and expensive) house selling process if you owned somewhere.

Also as we both run businesses it can make much more sense to invest pre tax money into projects that investing post tax money into the housing market for whatever return.

I think if we do get a house then we will save up enough capital to outright build the one of our dreams. For fun of course.

Sent from my Nexus 6 using Tapatalk

 

[AgainstAllOdds]

I rent, but I think ownership makes the most sense for the average American family.

Americans as a whole have zero financial sense. The average savings account has only $5,923 in it. Meaning that what the average person stands to lose is next to nothing other than bankruptcy (losing six grand).

However, the upside is their property appreciating by $100k+.

 

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[NoMess]

I rent, but I think ownership makes the most sense for the average American family..

Doesn't it all really depend on what you consider important and valuable? We own for several reasons, only one of which is we have 5 acres in what looks like the "country" but we're really in the middle of everything. 6 miles from several malls, all the shopping, eating, theaters, etc. you can imagine. You can't rent where we live: rentals don't exist.

But the increasing value of our home isn't our biggest reason for buying our home: our kids are. We want them to grow up in the same place and have a place they keep forever in their mind: happy thoughts of growing up in the same house, watching things change but having that consistent base - their home.

My personal opinion: I really like money but money without a family doesn't mean shit. A family with money is a whole lot happier!