1587

20 houses. If you’re not high rolling, why even get into real estate? (I’m fairly certain Strollen meant living in the area for 20 years)

1588

20 years.

1589

I mean I owned my house for just over two years and financially came out slightly ahead.

But that was fortunate. And unlikely to repeat so easily. So we are renting for the time as we don’t know where we will be in 3-5 years time.

Oh my rent is higher than my mortgage and property taxes were, for a smaller place. Broadly speaking rent is, for equivalent living space, going to cost more.

1590

But again… You kind of are. Those costs ultimately show up in your rent.

Now, in actuality, it’s a bit more complex than I’ve started, but the final numbers are still pretty close.

Ultimately, the landlord is making a profit on renting to you. Otherwise he wouldn’t do it.

Now, there’s a component that i didn’t explicitly mention previously, which is that they landlord is building equity, which he can eventually sell. He’s not only passing your rent to the bank, he’s paying it to the bank, and getting a house in return.

So, that fact means that he could choose to take on additional costs, like buying a dish washer. But at the end of the day, he’s ahead of you, as the renter. Because he’s accumulated thousands and thousands of dollars in equity, while you have accumulated nothing. The cost of maintenance is a drop in the bucket compared to that accumulated equity.

There’s no financial reason to rent rather than own. It is pretty much a straight up bad move. You are losing money as a renter, period. Every time.

The reason to rent, rather than own, is that you then don’t need to worry about selling that house if you move. If you own it, and actually want to get that equity or of it, you need to find a buyer and that can be a pain.

But really, the maintenance costs that your landlord pays are going to be small compared to the built up equity that he’s gaining over time, as long as he can eventually sell the property and get that equity back.

Edit:
Strollen is right that if you aren’t going to live in the house for at least a while, it likely doesn’t make sense, because you aren’t going to initially be building equity anyway, and the act of buying a house actually costs some chunk of money.

1591

The renter can take the down payment money they’re not going to use, and put it into anything they want and invest. They can take the closing costs, and invest. They can take the house inspection money, the surveys and invest. You’re only talking about mortgage as if that’s the only expense about buying and selling, like it’s the only cost. Then there is the fact the house might not actually be rented 100% of the time for the life of the rental. The land lord has money tied up, and the renter does not.

I think buying a house is a fine way to build wealth and equity, but it is not the only way and there is money the renter is not spending that they can choose to spend on pretty much… anything that can build wealth.

1592

I mean, your edit is one of the scenarios that proves this statement wrong? The rule of thumb is generally 5 years due to the interest and transactional costs of buying/selling.

1593

Yes, that’s why i made it. There is an initial overhead cost to buying a home and it only gets covered after s period of time.

But I still think it’s important to not be under the mistaken impression that by renting, you aren’t paying for maintaining the home… You are. It’s part of your rent.

1594

The landlord has to compete with market prices, so usually renting is equal to or less the cost of buying a home. If it was more expansive to rent, people would buy houses instead, which, with the increase of demand, would increase the cost of homes, bring everything back to equilibrium.

But we incentives homeownership, making homeownership more attractive, which further pushes up the cost of homes.

As to why landlord might be able to rent for less then you can purchase a home and pay a mortgage? Because usually the home has been paid off already or nearly paid off. So, the land owner doesn’t have the same costs that the renter would have if he or she tried to purchase the home. Also, the renter doesn’t have to worry about closing costs, no extra fees or paying a realtor.

It’s why renting can be a profitable endeavor for both the renter and the landlord because as a renter, you don’t have to worry about the initial start up costs, and the landlord can usually amortize the costs over more years then the renter can. And of course can write off a lot of the costs as business expanses.

So yes, the cost of renting a place can be less then the cost of buying a place, especially after you factor in closing costs and future maintenance costs. And, besides saving on costs, it gives you flexibility of being able to move if necessary.

Some studies show employment would be even better in the US if more people rented, because of the imbalance between where populations are and where jobs and opportunities are.

Anyway, right now, purchasing a home is very attractive, but that is due in no small part to the tax incentives the government offers.

1595

No… that is not how this works. There are a lot of reasons why people can’t buy a house, but they’re not undercutting each other to get under mortgage and maintenance costs.

1596

No, I think a lot of people rent when renting was cheaper and a lot of people buy when buying is cheaper. Sure, the poor will never have an opportunity to actually buy a home, but they were never going to get that chance in the first place because the US hates poor people.

Right now with interest rates so low, the cost of home ownership is probably as low as it will ever be, if you can afford the down payment.

1597

Yeah, there is a roughly 5% broker fee that the seller pays upon closing. Plus various title transfer fees and such.

For selling our house it wound up costing around $18 to sell. Meaning that we had to sell for at least $18k more than our buying price to break even.

Plus the escrow for future property tax, which I am excluding from sale costs ad we would have owed that eventually anyhow, just we had that amount paid in advance.

And we put a significant % down (over 40%) so had more equity and less loan interest than many others. So the reality is that for two years of ownership we came out ok. But if you can not put a significant chunk down to start, pay extra on the mortgage (we did extra both years to deduct more principle) and can sell for at least 6% more than purchase then a short term buy can work.

But you basically need to check all of those boxes to come out ahead of renting for short term.

1598

Except that not everyone can afford the process of buying a home, or possesses the credit necessary to get a favorable mortgage.

1599

Historically, it’s been low for awhile.

I mean let’s just back up here a minute.

What do you think is a high interest rate, and what do you think is low? What are your reasons for that?

What makes you think most the landlords own their house so they don’t really care about pricing around a mortgage?

What market are you referencing where landlords are undercutting each other to the bottom. Many of the markets don’t have enough rentals as it is, so I am curious where all this downward pressure is occurring.

When you say cheaper, are you saying that strictly based on mortgage cost/interest rates or are you factoring in the price of actual houses at all and land?

The US does not hate poor people and the fact there are several 0% down programs for housing is just an example of that. That does not mean, however, that we can’t do more. Buying a house can easily be last on the list of challenges for those with lower incomes.

1600

And the fact that selling a house will have broker fees and title transfers that will cost >5% of the house value to sell. So on a 200k house you’re looking at at least $10k in closing costs. Realistically closer to $12k. That is not insignificant! So unless that house appreciated in value more than that, it also factors into the monthly cost of ownership.

That alone makes short term purchases a poor bet unless you know the value will accrue more than 5% in the term you stay.

1601

As landlord, I can say I don’t always make a profit. In fact, most landlord on the coast don’t make a profit for many years, or until they sell.

For example my old house in Santa Clara,CA that I bought in 1983 for $153,000 is according to Zillow is worth 1,631,000 (I know that is approximately correct.) Property taxes and mortgage would run $6300 month, insurance and maintenance at least $1,000/month. Zillow says I could rent it for $4,400/month after I pay ~10% for a property management. I’d clear $4,000K but my expenses are $7,300. I do get some nice depreciation benefits, but even so it going to take a at least 8-10 years before the place is cash flow positive and that assuming I can raise rents at nearly 10% a year.

The only way I’m going to make money on this property is hope I can sell it for somewhere between $2.-$2.5 million in the future.

That’s quite a gamble for many people to take, and why it may not make sense to buy in the Bay Area even if you can come up with the huge down payments, and make the payments.

1602

Yea, honestly the rent vs buy thing is a bit silly. On the financial side, it’s entirely just a financial judgement call dependent upon where the market is, where it will be, where your income is relative to the market, ect. There are other lifestyle and associated issues that might well be present but for many metro areas those lifestyle benefits or drawbacks seems like they’re already priced into the property.

Even if you’re in an area where buying vs renting is a good idea, for ex., if you expect a downturn in the next couple of years it probably makes sense to wait both for your own financial security and a chance to buy when the market is lower. Renting for 5 years might make sense if you’re single but might simply not be an option if you have a family and want to get into certain school districts, otoh.

It really doesn’t make sense to say one solution is always better than the other. I mean it’s kind of a CAPEX vs OPEX thing basically.

1603

So, it’s a long term investment?

1604

For somebody, not for me. I only buy inexpensive rentals in place where the rent is greater than the mortgage.

1605

Of course, that’s the part i was trying to clarify. Some of that profit is going into equity, and this is not liquid… But overall, you are turning a profit. Otherwise, well, you wouldn’t do it.

1606

Generally that’s one rental investment strategy. Buy with cash, refurb, refi to get to cash + refurb costs back (at increased value). Rent pays for mortgage + expenses plus small profit. Less risky then flipping.

Or do it without the refi if you can stand having your equity tied up, but collecting all the rents.

Downsides are a bad appraisal (like flipping) or long periods with no tenants. I generally prefer condos/townhomes for that reason; I’m never more than a month without a tenant.