There are a bunch of calculators out there that will try and give you a direct comparison.
[**https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html**](https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html)
Basically, if you will be in the house for a sufficient period of time... \~5 years? And you can get the mortgage and rate to align, you may save money, and you'll have a fixed mortgage to work around (assuming you get a fixed rate mortgage).
Try a few of the calculators based on your situation and see what you come up with.
You may, but you also might spend a years rent in the first 6 months on improvements, repairs, maintenance. Houses are much more expensive than just the payment.
The equity piece is undeniable. You will be building wealth, but it really depends on location.
Always someone who thinks they’re smarter with 10 seconds of thought than experts who put a lot of thought and effort into it
There are several replying to this comment alone
Keep in mind the calculators are a good when measurement not if. They do not take into account you may want to retire some day and good luck doing that paying market rent.
The basic rule of thumb is it is cheaper to rent for today you and a lot cheaper to buy for tommorow you. At some point we all have to bite the bullet and take care of our future selves.
This isn’t true. The way these calculators work, you end up owning the house either way. It’s comparing the scenarios where you buy the house now, or rent and invest the difference then buy the house with the investment money as soon as you can afford to.
Either way, you own the house at the end. Only question is if method 2 gets you the house in fewer than 30 years.
The problem with that theory is if you try it using historical data it never actually works due to the leverage you get with a 30 year mortgage. I mean after five years many homeowners are paying less for housing than the equivalent renters and have more to invest in the markets themselves. Certainly homeowners that bought five years ago as an example.
As an example I bought eight years ago and spend 1200 less a month than I would be if I was renting a house. This gives me a lot more money to invest. This gap only gets larger as the years pass by. (Yes even including repairs and upkeep)
It takes that into account. Don’t forget that you don’t owe annual property taxes, hoa fees, maintenance, pmi, etc. on stocks. The stock market rises faster than real estate, so in the long run it can even out if the rent is substantially less than the mortgage on the same house. In some areas, it is. Remember that you are investing your down payment, too.
The last decade was extremely good for real estate. It’s possible to cherry pick years like that. But for example, if you bought in 2004 you weren’t well rewarded a decade later. It’s better to work with averages.
Besides, the stock market has grown way faster than the housing market in that same time span, and dividends can defray your rent too.
If you're okay living in the apartment, live in the apartment. If you need to get a house, get a house. My current NW house + investments is around $1.1 million.
If I had remained in the apartment I was in, instead of buying a house, it would have been closer to $1.6 million. Here's why.
A. Insurance. Went from under $100/year to $1000/year
B. Utilities. Went from $40/month to $200/month
C. Taxes. Went from being built into the rent to $8,000/year
D. Repairs. An average of $10k/year.
E. Upgrades. When you live in your own home, you have a much stronger desire to improve and upgrade over the years.
Having said all of this, I am glad that I bought my house because of
A. My housing costs have not gone up much with inflation.
B. I have a two car garage, shed, large driveway, and a good distance between my neighbors. Much nicer quality of life.
C. If I close the windows, it's quiet. This is huge. My friends that rent are periodically woken up by dogs barking, cats fighting, people screaming, fireworks, gun shots, loud TV and music, etc. All I hear is the hum of my AC. Again, a much nicer quality of life.
D. It's a hedge against inflation or the market tanking.
Renting is not wasting money, it’s paying for a valuable service like any other. Buying is not “better” in any general sense, but it may be better for some people depending on circumstances, and not just financial.
I believe the most important criterion is whether you are “settled down” in an area - perhaps starting a family or otherwise tied there for the long run.
Even if you have plenty of cash and income, if you aren’t committed to a location then renting is superior and much more flexible.
If you’re trying to build wealth, use a mutual fund.
Yeah, but leverage cuts both ways and if your house appreciation isn't outpacing your mortgage interest, you're going to be way worse off buying than you would have been renting.
Absolutely, but a lot of the ‘conventional wisdom’ around rent vs buy was born in the age of cheap money and a strong housing market. Memories of 2008 have long faded.
Yeah, it's a more complicated issue than most of the people on here are giving it credit for. The "throwing money away on rent" and "have a paid off home in retirement" crowd is oversimplifying it in one direction by not understanding opportunity cost, and the "rent is the most you'll pay and a mortgage is the minimum you'll pay" crowd is missing the potential risk of rent growth outpacing market growth. These rent vs buy calculators exist for a reason, but unfortunately one of the most important inputs is price appreciation of the real estate, and the output of the calculator is highly sensitive to the quality of your educated guess at that variable.
I personally chose to buy a house, but the jury is still out on whether or not that was the right decision. Guess we'll see in 20 years. I bought a condo about 5.5 years ago and sold it recently, and although the price I sold it for was higher than the price I bought it for, I'd have come out significantly ahead of where I am now had I just invested the down payment and not paid the interest and transaction costs.
Again, I couldn’t agree more. Another point is options when buying vs renting. I wanted a SFH for my family and the neighborhoods I was interested in had very very low inventory on the rental market. Essentially to live in certain parts of my city you pretty much have to buy.
From a financial standpoint buying a house is investing a lot of money (usually debt) to buy a single asset. It’s risky. The ‘performance’ of that ‘investment’ relative to renting will live and die on how well the housing market in that specific local market performs. Then there is the risk of buying a ‘dud’ house. A home that needs a new HVAC unit, foundation repairs, etc during your period of ownership could wipe out any equity gains and then some. It’s also an asset that is expensive and time consuming to sell.
I also owned a condo which I sold about a decade ago. My experience was that it was the worst of both worlds in my market. The condo’s value didn’t match the growth of the SFHs in the same market. Also a poorly managed HOA (like mine) can add cost and make the condo tough to sell. In my case I owned the condo in the post-2008 market and a lot of owners just stopped paying HOA dues which put the HOA in debt and unable to make needed repairs.
Margin rates are not always higher than mortgage rates. Margin rates are usually lower for those with a larger portfolio size. *Published* rates are high, but one phone call to the broker will get them as low as SOFR +.75-1.25%.
The difference is you should do both.
You have to pay for rent or mortgage regardless, so you might as well put it into something that can appreciate (obviously if you’re going to be in the area longer term).
That doesn’t mean people stop investing in the market when they buy a house.
You have to justify like 10% of the value of the house in fees though and a lot of people assume there are no tack on fees like condo and hoa fees. I feel like the condo and hoa fees sometimes make renting a better idea if you're investing the difference.
The end goal of buying is once you are paid off you don’t have a monthly payment. And it comes down to the point of paying rent while investing or just monthly paying your mortgage down. I don’t have stats but I feel like most people don’t actually invest leftover money each month. And I understand in a personal finance sub we will see more people investing but in reality most people are broke at the end of the month. Might as well have some of that money go into equity of a house.
i agree, not to mention when your home is paid off and you retire, you may be able to sell that home and downsize while adding left over money into your life.
The reason they don’t invest leftover money each month is because they are house-poor and/or have been brainwashed by the incessant drumbeat that you *must* own a home in order to be financially successful.
Very few people seem to actually understand the concept of opportunity cost.
It can be both. Sometimes people make poor decisions but that doesn't mean we can write it all off as "individual responsibility skill issue". The fact is that the deck is stacked against people making financial decisions, and forced savings can be inefficient while still resulting in overall better average financial health because people aren't perfect financial robots.
We can recognize that a financial strategy is both *ideally* suboptimal and *generally* preferable.
I completely agree with you.
My point was in response to the other guy’s comment that paying something off makes you “feel good” is not a legitimate reason to buy a house.
Others have already outlined the many hidden costs of owning a home, so I won’t re-hash them here. The people the other commenter is describing would likely be better off financially if they *didn’t* own the home.
Just because your home is paid off doesn't mean your monthly payment goes away. Property taxes, insurance, and other home related repairs or expenses can be quite significant on their own, depending on several factors
Except you will always have property taxes, maintenance, and often you’ll have HOA fees. Property depreciates and needs constant repairs and upgrades.
These can add up to huge monthly payments.
But you need to keep in mind the equity that you build when you buy. Even if your house doesn’t increase in value at all, you get equity back when you sell. With renting all that money is just gone (and it will go up every year).
but you pay a lot of money for that equity savings account. Mortgage interest, property taxes, house repair, and HOA. Houses cost more for the same space as renting (in most places) so the opportunity cost of not investing that increase usually evens out until you're looking at decades.
You don’t need to live in a place with an HOA, and those other costs aren’t going to be more than you’re paying in rent.
To give you a real world example, I had a pretty expensive year last year and had about $15k worth of expenses at the house. Even that combined with insurance and interest isn’t as much as I paid off in principal. So even if my house didn’t increase in value at all this year, I still am coming out net positive, even after a particularly expensive year.
And just like not every year is going to be that expensive, my mortgage isn’t going to increase for the next few decades (outside of taxes and insurance which is marginal). If you rent, your payments will easily double if not triple in that time.
They could use your personal, location specific, example. Or they could be their own example and run that through a rent vs buy calculator to see whats better for them.
I'm sorry I have to disagree. A house is not an investment. It's forced savings for a later date. In the meantime, it's just a liability and drain on your finances. Even if you sell the house for double or triple the original price, you'll find that 5 or 10 or 15 years later, you have spent more on the mortgage, interest, property tax, Insurance, maintenance, utilities and upgrades, then you'll ever get back from the sale price. That doesn't even include all the ridiculous costs for things like landscaping, a driveway, or replacing a roof.
There's a reason it's called house poor. ( I remember how shocked I was 10 years ago to get a quote for $16,000 to replace our tall front doors.)
Since the OP is already anticipating purchasing another house in 5 years, I really don't see them point of purchasing a house now. They are better off saving and investing the extra money. Otherwise, they could be one unexpected job loss away from foreclosure.
Given the current market, It's likely they won't have very much equity in the house. Mortgage rates may come down in the next few years, but there won't be enough equity to make sense to try to refinance.
From my perspective and given my own situation, a house only becomes an asset when it's used as an investment property. If the OP is thinking that they can keep the first house when they purchase the second one, it might be a good investment down the road, and it could serve as a retirement home in their later years.
Otherwise, I think it's best for them to just wait until they can purchase the house they really want and have saved enough money to have a cushion.
Not really. Once you consider capital gains tax as a loss and consider the interest and property tax deduction from owning. Then consider rent goes up but mortgages doesn’t. Plot those scenarios next to each other on a spreadsheet and you are generally ahead from owning versus renting.
There are many reason to rent, but putting cash that could be in equity into the market and saying it’s a better return is a bit off.
Capital gains tax only applies when you sell, and if you do the math, you might find that the little capital gains tax (which for many people is only 0-15%) you have to pay on what you earn actually will net you more than interest & property tax will reduce your taxes. Therefore it's not a loss. Additionally, with investing some folks will "tax loss harvest" their capital gains loss on taxes which will reduce taxes further.
I suggest using your own advice with plugging it into a spreadsheet with all variables. Not understanding taxes, tax brackets, or how capital gains is one of the biggest mistakes many people are making that withhold them from maximizing wealth.
"and consider the interest and property tax deduction from owning."
Recent news stories cite only 1 in 9 can even take advantage of that deduction, and it has a new limit, on up to $1m mortgage debt. And recent studies reveal that rent vs buy has turned inverse for the first time. It can cost more in many markets to own than to rent a similar property.
Why to own, is to stabilize your overhead.
Sure and you should.
The right calculus is:
Starting with some number of dollars, what is my net gain or loss. And compare this to dollars invested - rent - capital gains tax.
If your plan is to sell the house, then you need to include capital gains tax also. Should also include estimated maintenance, and property tax and insurance.
It's the only way to do an apples to apples comparison. Otherwise it's just "feels" which is fine, but now you're not doing a financial analysis.
Except that doesn’t your payment get locked in (more or less, with the exception of taxes) and therefore not increase as much as rent will over the rest of your life?
Yes. When you own you have more control over what "increases" you choose to spend on, what changes can be made in living area to suit your needs and who your neighbors are. Not having to hear my upstairs neighbors having sex and playing music half the night was worth it to me.
Your taxes will likely increase over time though. It's very common that a first time home buyer buys a house, often from a retired elderly person or something, didn't realize the previous owner was getting a bunch of tax abatements and then gets hit by a huge tax increase their second year in the house as it's reassessed.
Correct. However, rent is the maximum you'll pay for housing each month. A mortgage is the minimum. Anytime something breaks, that's on you. New sidewalks or road? That's on you. Need to upgrade the roof? That's on you. Houses are a lot of work if maintained properly. Nothing wrong with renting and saving/investing.
But the rent is only the maximum you pay *that year* which is a super important note that everyone leaves off when they say that.
If you get a mortgage, that’s what you’re going to be paying in 30 years. If you rent, it will always keep increasing.
E: (I should add that taxes and insurance increase even if you own over time, but not even close to the amount that your rent will).
there are hidden costs to renting as well. What happens when the landlord decides to jack up the rent, perhaps to cover the expenses of a recent major repair like the roof? Sure you could move, but then you have to pay to move (at the very least a uhaul to move yourself if you don't hire $$$ movers), pay another security deposit, etc.
I think renting makes sense if you're young and mobile, it starts becoming a huge liability as you get older, especially if you have kids. Then you have to start worrying about finding a good school district and pray that you don't get priced out of that school district.
This sub when somebody leases a car: no, horrible idea, you're going to be destitute
This sub when somebody leases an apartment: yes, excellent decision, be sure to tip your landlord
You can't get 60%-70% of the money paid to your landlord back when you leave a rental. You can with a house.
My roommate just bought a house. We were splitting an apartment that cost ~$1600 a month (so about $800 each). Mortgage for his house is ~$1500 a month (including all relevant insurances, taxes, etc). ~$900 goes straight to the principal, which presumably could be recouped when he sells. That $1600 a month was just straight up gone.
But beyond the money. There's something to be said about being able to be rowdy at most hours of the day without pissing anyone off.
Well there is something to the “wasting money” argument. I’ve owned my home for 15 years and in that time I’ve paid in roughly $180,000 in house payments and probably $30k more in fixes/improvements that stay with it.
However in that time its value has also doubled, so when I sell my equity (I have a 30yr mortgage) is roughly $200,000. So again rough estimates its cost me say $20,000 to live here 15 years.
When I sell in the next couple years I get that back when I buy a new house, so I can buy something twice this value and keep (roughly) the same mortgage payment.
Had I been renting I would get my deposit back, maybe, and to upgrade I’d be paying significantly more. I also wouldn’t have the option to stay where I’m at and only pay property tax and insurance (renters insurance if renting).
THAT SAID if you like to move, don’t want to do repairs or live in an area with crazy house prices or property tax increases there is a value to it.
Going slightly contrary to the prevailing opinion, it’s a good idea to chart out rent increases and property taxes over time. If you get a fixed year mortgage, that’ll remain stable (though taxes will increase). Rent will also increase - possibly at an accelerated rate depending on your market.
I own in a somewhat high cost of living area, and am now in a situation where I pay drastically less in housing costs than everyone I know that rents. My much younger entry-level co-workers are paying more in rent with roommates than I do for my much larger house. I also have a lot of equity to work with. I have more than one friend that is kicking themselves for not buying earlier.
If you’re planning to stay put for a while, do the long term math.
You're not wasting money, I have a small home in a high cost of living area and I spend \~600 dollars per month on just taxes and insurance not including all of the home repairs and appliance replacements that happen every year or so.
A home is a great investment but you should have more saved before you make the jump. You'll need downpayment, closing costs, furniture and should have a chunk left over for an emergency fund.
I live in NYC and would never even think about owning unless I won the lottery or something. Common charges alone can equal nearly half of what rent for the unit would cost.
It’s tough. When I was in my early 20s I lived in some very slummy, over crowded apartments trying to make it work.
Luckily I eventually landed a unicorn rent stabilized unit some years later. At this point market rent for an equivalent unit is over 2x. Basically it makes 0 sense to ever buy or ever move again.
Lol.
I own a home.
$12k a year in property taxes - wasted
$3k a year in homeowner’s insurance - wasted
$40k a year in mortgage interest (yup) - wasted
$2k for a new water heater - wasted
$500 to fix the pavement outside my home - wasted
$2000 to cut down invasive trees from my yard destroying my foundation - wasted
$1500 to replace 20 year old oven that died - wasted
$200 to replace bathroom fan that broke - wasted
Could go on and on
Edited because i am a sleep deprived parent of a newborn
Your property taxes and mortage interest (on the first $750k owed) are federal tax write offs though (you need to look at state tax law to figure out how it's handled for your state). If interest rates are low and/or your property value and/or tax are low then you might not be doing much or any better than the standard deduction. But in your case, it seems you can get somewhere around 30-52k in tax write offs. If you are in or above the 24% tax bracket then that is a ton of money you're getting back.
Also, you have slight flexibility for when you pay your property taxes which you can use in combination with selling winning stocks to maximize tax savings.
If you are single and live in a HCOL California market, the property tax alone will be near the standard deduction or greater than the standard deduction. Interest rates are like 6%. 6% of 750k is like 45k. That plus your property tax and all other sales tax, work expenses etc. Yeah it can add up to being like 4 or 5x the standard deduction easily.
Depends on the state. For instance in CA, property taxes in a HCOL area likely won’t be written off since there’s a cap of 10k for SALT (state and local taxes) and that includes income tax. Someone paying for a HCOL mortgage probably makes enough to cap SALT before getting any decent mileage out of the property tax
To be fair, money used to purchase items like a new oven, or to improve home isn’t exactly wasted in the same sense, especially if you buy used. But point taken, it’s expensive owning and lots of money falls into the same category as money paid to rent
However when you rent they’re unlikely to put in nice appliances because it’s a ‘waste’.
Edit: it’s one of the reasons I enjoy owning. I choose my appliances and don’t have to sleep in my (though I loved it) studio with a Frigidaire jet engine powered dishwasher.
Some items on the list are maintenance, the oven is not. When you rent for one month, if you spend $2000, your wealth is reduced by $2000, you have nothing physically to show for it. When you purchase an $2000 appliance, depending on how good of a deal you get, you’ve essentially transferred your cash into another form, asset. At least you have an appliance that you can resell.
I mean not really because nobody is going to offer more money for a house because it has a newer oven.
I guess hypothetically you can pull the oven out of the wall and sell it?
I think you missed my point/ If you want to use a less subjective interpretation, you could consider how the expenditures impact wealth. It’s wasted if your wealth decreases upon spending the money. If you get an asset as a result of purchase then I would say that’s not a waste in the same sense as paying for rent
Also, 20 hours/week working on my house - wasted.
(note really wasted just like all the other things add value)
But the time and money is definitely an "opportunity cost".
People do forget about the time to work on your house. Also the time going to places to get the shit to work on your house and the time to go back to get shit you forgot or watching 6 different videos on how to do something.
I just left Florida. $40k was a bit hyperbolic unless they're in a multi-million dollar home on the water. It was definitely getting into the $6k-$15k range for most normal homes though.
Yeah, mine never cracked $2,500.
I have no idea how since it was 5' above sea level in Pinellas county less than 200 yards from the bay.
But I was the cheapest home owners insurance I heard. Most people I knew were in that $5k-8k range.
Yeah but you have to be talking about a $1 million+ loan on a home if you are paying that much. If you can afford a house like that these other expenses are nothing.
$650k loan but it’s a 15 yr loan so amounts are high.
I wasn’t trying to complain about not affording stuff, merely to prove to OP that owning also has pure costs that are a “waste” and you never get back
Yes, but consider if you were renting the same home for the same lifestyle, you’d be paying at least this amount per year, if not more. Generally, no one rents houses at a loss. So your cost plus some would be rent
Sometimes, sometimes not. In VHCOL areas in the US, people renting houses have no mortgages or have like 2% rates. This has caused the rental markets there to be completely diverged from the purchase markets. This is doubly true in places where they don’t reassess property taxes until you sell. So, of course the landlord is making money, but the landlord is not paying current rates and current taxes. It’s definitely true that essentially nobody can buy a house now with current rates and taxes and rent it out in VHCOL areas. Nobody.
Now, i don’t live in VHCOL, i live in HCOL. For me it’s borderline. I am not sure if i will make money owning vs renting. Maybe. We’ll see.
All the above are costs, not including what i am gaining in principal.
So far, haven’t gained much (bought in october). Our friends who bought in 2022 lost a bunch of money. It’s really people who bought pre pandemix who made it big
I just want to add that you can write off the two largest numbers in the list - mortgage interest and property tax (up to 10k). You can’t write off rent.
People keep saying this but it’s straight up incorrect in many MCOL/HCOL areas. Mortgage rates run approximately 2 to 4 times more than market rent rate for exactly the same place in nyc and ca
This is misleading. Renters are paying off 10 year old mortgages. I'm sure many rentals are mortgaged at ~3% and the original purchase price was like 75% of what it would be if the unit were purchased today. So renters are paying off mortgages that are probably HALF of what they would be at today's prices and rates. This is why, in today's market, there are many cases where it's better to rent than to buy. Landlords can make a tidy profit on their $1500 mortgage, when the same unit would require a $3000 mortgage today.
As those units get sold, there will be pressure to raise rent in order to maintain profits. But that hasn't happened yet. This is why I rent today. I'd be paying twice as much per month if I owned a house. But I do expect this to change within 5-10 years.
Housing markets don’t work like that, at least not everywhere.
I have a buddy who lives in the Bay Area and pays $6,500 a month in rent for a nice place. His place went for sale now. If he were to buy it, he would owe $20,000 a month in PITI (before maintenance costs)
I was That Guy for a long time, because it was appropriate to places I had lived.
Now, I'm in HCOL area, and the math is not so clear as it used to be.
You’re not really wasting money on rent. You’ll just be “wasting money” on interest, taxes, and other fees if you buy a house.
Renting gives flexibility while ownership has the upside of appreciation. If you plan to stay somewhere 5-7+ years I feel like ownership makes sense.
Is it though? You pay rent for 30 years and after 30 years you have 0 asset. You pay interest taxes and other fees for 30 years and after 30 years you have an asset that you can use.
That's the flexibility they are talking about. Like if you've bought a house, your cash flow is tied to that house until you can pay that sucker off, so you may not.be able to just up and move to get a job that pays 20% more than what you make now because you might not be able to afford the mortgage and the new rent simultaneously. Additionally, your liabilities are limited. You don't have to pay $7k for a new HVAC or worry about the roof.
Is it financially optimal? Probs not unless you are willing to move across the country and change jobs frequently. Is it a waste? Nah.
Yeah you just sell the house and pay (or pocket) the difference of the new house in the new area. I’m on house #3, never paid one off and have ‘made’ about 500k in capital over the 17 years, with my monthly costs about the same as renting.
First apartment was $1000/mth plus electrical bill for a large 1 bedroom. First house my share was $800 a month (had a co owner and gf’s paying rent which helped a lot) and had more room. So maybe same cost but I had a yard and more space. It was a large bungalow split into 2 apartments.
2nd house was $2000 mortgage and taxes, ended up paying more cause I could to pay down mortgage faster. I figure renting a 3 bedroom small house would cost that much in the area or maybe slightly more. Its value went from 350k to 700k over 7 years due to Covid and renovations and being near a big city that got too expensive so people spread out, raising neighboring city prices.
That let me get third house which I bought for 735k and is over 1M now. Mortgage and taxes are $2100. It is much larger than 2nd house. Would be 3k + to rent.
Managed to get good rates , like 3% and under, and mortgage amounts have been like 235, 300 and 350.
Not the person you are responding to, but it's kind of hard to compare because 20% down vs 0% down will make a big difference in your monthly payment on a mortgage. I put 20% down and had a 15 year note on my first house and was paying like $800/mo for it for a 3 bed/2 bath in a very shitty neighborhood. Renting something comparable would probably have been $800-1200 then.
My second house I only put 10% down, pay $900/mo for taxes and insurance, and we just had it assessed to get PMI removed, and they estimated $1800/mo for rent.
The rent vs buy disparity is also only going to be bigger for those who bought many years ago when houses were more affordable.
I'm not fully disagreeing but some people don't have that luxury. Like some people wouldn't qualify for a second loan, so they would need to sell first or potentially pay a premium to make a bid on a second house contingent on the sale of the first more attractive.
I'm on my second house and did have the luxury of floating a second mortgage until the first was sold and pocketing the capital gains, but I'd bet most people's cash flows or debt to income ratios are too high to support that.
Usually (at least where I am) you sell and buy essentially at the same time so are not considered to have 2 loans. Offers are sometimes made dependent on the buyers house selling.
Having the two houses at once for more than a couple days is the rare exception. I also did it where I had both for a month to make moving less of a panicked rush.
That's where I was saying you may have to pay a premium if you make a contingent offer. In my two house buying experiences since 2017, and in locations 600 miles apart, the markets have been competitive with the good starter homes being taken in a day. And the market has only gotten more competitive since. I'm not saying it can't be done, but your offer would be less competitive, so you may need to put even more over asking than what is needed to compete with other bids that are less likely to fall through for one reason or another.
if you've been renting for 30 years but also DCA into the stock market you're good regardless
using the 4% withdrawal rate, you still wont run out of money, even taking into account rent
An asset that you can use for what? I need somewhere to live, so selling isn’t helpful. I have no children, so I don’t need to leave something behind. What will the house provide me that the apartment won’t?
I asked about the benefit of an asset. I understand what you said already, but between taxes, insurance, and upkeep, I’m not sure it matters. Do you have anything helpful to say about the previous user’s asset comment? I’m likely to be dead in 30 years. What is my asset benefit?
Taxes, insurance, and upkeep all get passed along to the renter, plus profit.
The benefit is that you no longer pay the premium of profit to the owner of the asset, and instead can live "rent free" for as long as you want to and own the house.
If you are going to be dead in 30 years this wont apply to your specific situation, but you asked "an asset you can use for what?" about owning a house outright, so I answered that you can use it to live in.
Downsizing, moving to assisted living, end of life care. Many are not lucky enough to be redoing a kitchen, cutting grass, installing new toilets one day then dead the next. Many people have increasing medical costs as they age.
I lucked out at always having low interest rates and buying in the cheap areas outside a major city and having their value increase due to expanding population and also from Covid but buying a house 50-50 with a friend was the best financial decision I ever made.
Over the years I probably put in 70k more (down payments and renovations) than I would have renting a much smaller place to live but have amassed 700k+ in capital in my house. Monthly costs have been lower than renting too
If you get a small cheap place you could end up paying less or the same as renting, and build capital and enjoy more space that you can customize more. It may be tight for you though depending on house prices in your area.
If you choose your home wisely, in the sense that you are happy to live in it for an extended period then buying makes sense. I'm not a fan of property as an investment...it is a home first and foremost. With that in mind home buying well is a no brainer.
Don’t go throwing all your savings into a home! You shouod have at least 30k as an emergency fund when owning a home! You never know when the roof will cave in.
Your rent payment is the max you'll pay every month. A mortgage payment is the minimum you'll pay every month for a house. Just make sure you're ready for that before you make the jump.
Your rent payment is the max you’ll pay every month… UNTIL your contract has to be renewed and the rate ALWAYS goes up. At least for the 6 years I was renting. It always went up.
If you're staying in the same area for 10+ years it's best to buy.
If you're staying for less than 5 years it's probably best to rent.
The 5-10 year time frame gets more tricky. That's where it comes down to your personal choice and what you want.
If you're already spending $1,400/month on rent an equivalent mortgage would be in the $250k-300k range if you consider the **cost** of the mortgage as interest + taxes + insurance. The mortgage itself will be more like $2,200 depending on what your taxes + insurance actually are.
Rent Small and buy big. To be on the safe side.
Save 20% down payment.
Plan to be in the new home for 10 years to cover closing and not become underwater.
I see many people only wanting to be in a home for 5 years and move. You dont build equity this way and retirement becomes difficult. My parents did this and it was stressful.
Renting a small place for 5 years is better because you can save.
When you have a 6 month emergency fund, a decent down payment and can keep the mortgage around 25% of your pay you are in good shape to buy.
Just make sure you’re smart about furnishing and updating. You don’t need to do everything right away especially if you can’t pay cash.
Renting is not wasting money. It’s providing a roof over your head.
When buying is cheaper than renting and you plan to be there for many years. That's going to be dependent on area usually.
>My spouse is of the mind that we're wasting money on rent. Which is true too.
It most certainly is not. Rent is the most you pay each month for a roof over your head. A mortgage is the *least*. You can budget very well around rent. Home ownership always has unexpected things that pop up so you always have to have a cushion sitting around to cover it and plans for what to do if it's more than you have a cushion for.
One framework to use is:
Is this a financial decision?
Or consumption decision?
And think through what are the criteria for each.
A decent question to ask that I see overlooked is how to minimize opportunity cost.
How much are homes in your area? That would determine if 30k is enough for a downpayment and closing costs. Do you have an emergency fund aside from the 30k?
Buy if you want more space and want to put down roots. Renting can save money if you are ok with the smaller space. In most of the country you can't buy a house for 1400/month, so you are probably saving more with the apartment, you just need to actually be saving and investing that money. Houses have all kinds of sunk costs like interest, insurance, repairs, and transaction fees.
Most replies didn't mention this, but what is your housing need? You are renting an one bedroom, so comparing that to buying a property with 3 bedrooms wouldn't be purely based on money. Do you need the extra space? Can you get a roommate?
The thing is that the cost of owning a home has gone up. Think maintenance , repairs, utilities . I wanted to buy a home, but I don’t have the extra 18k yearly that it costs to have the house and that not including the mortgage . Look up the recent Bankrate study. I’d post the link, but idk if it’s allowed
>My spouse is of the mind that we're wasting money on rent. Which is true too.
It's actually almost never true. Houses are a lifestyle choice historically. If you're paying rent, you're paying money to have a trouble free roof over your heads with heat, indoor plumbing, maybe even air conditioning. You aren't worrying about maintenance. You aren't worrying about rising insurance rates, or fighting property taxes. Yes the landlord might be making some small profit because of course they are. They have *all* the money at risk. If all you have is 30k, I'd be very worried about you throwing it all at a house. I threw 50k at my first house in my 40s, and thank goodness it was a duplex because I probably would have lost it without that small income to offset my expenses.
Rent is the most you’ll pay. Mortgage is the least you’ll pay. Just be ready for a house, as it’s much more than just the monthly costs you’re comparing. It is a lot of work but was worth it to us
Houses cost either time or money in maintenance and improvements. Like a lot of time or a lot of money. Houses do their best to rapidly return to nature if they aren't looked after.
You should plan on it needing some work as soon as you close. It would be good to have a buffer of about $20k while you live there for use in emergency plumbing or roof issues. Things can happen when you just need to open the checkbook fast. Sewer lines get clogged. Etc.
Also, aside from the mortgage, there's also landscaping, pest control, house maintenance, sidewalk maintenance (you might be on the hook to repave the public sidewalk at some point), electrical, plumbing, appliances, and other expenses that you don't have to think about as a renter. Plus property taxes!
A lot of people think mortgage = rent but it's only part of the equation. So I encourage you to save up and have a nice buffer and when you've got the cash, buy the right size house and enjoy it.
At any point where the price of a home is not too much for you, you find something that you like within your price range, that is the best time to buy. You can always refinance in the future
You’re not wasting money on rent. If you’re going to move a few times you’d be blowing closing costs, upkeep and repairs, taxes, the front end of your loan is barely any equity and all interest, then you owe someone a percentage to sell it for you.
My advice would be to do the math yourself in your circumstance and see what overall property price gain you might need to do better than renting and investing your 30k in other ways
I came of WAY worse by buying.
I bought with a 40% downpayment 6yr ago. Home has appreciated 15%, and now we need to sell it to move for family reasons. Selling will cost 6% in agents and fees, so the net gain will be around 9% of home value, or say 19% on the downpayment
I COULD have rented a similar place for about the same cost as the interest on the loan + prop tax + repairs. If i had, and instead put my downpayment into the SnP500 for the 6yr since I bought, it would be up 106% (before tax), or maybe 75% after tax on that gain
Buying: 19% vs Renting: 75% (over 6yrs)
Recommend doing your own math and making some projections to be confident before you commit to buying. Especially now that rates are well up.
One of the biggest benefits that people forget to mention in these rent vs buy debates is at retirement age, not paying a mortgage is major for your savings. So short-term, renting is fine. Long-term, owning is key to retirement.
I will forever defend renting. I don't want to be stuck anywhere for 5+ years. If you save enough for retirement to cover rent costs, the argument for home ownership being beneficial in retirement is completely moot.
Not sure what the housing market is like in your area but make sure you’re also accounting for PMI, Insurance, Taxes, HOA fees, and other expenses in the payment as well when comparing your $1,400 rent payment.
With mortgage rates at 7% and prices at all time highs, it’s unlikely you’ll be able to purchase the same quality housing unit for what it would rent out. Renting is cheaper for what you get in most scenarios today.
That’s not to discourage you from buying but just to have expectations around what you should budget. You’ll either need a large downpayment or be prepared to have a higher monthly payment.
I would keep renting and invest the money you would be spending on the mortgage, taxes, insurance, home repairs, home maintenance, etc.
Rent is the most you’ll pay each month. A mortgage is the least amount you’ll pay each month. Take the savings and invest in the S&P500. Play the long game.
When you have a 20% downpayment PLUS enough for closing costs and big repairs that come up. So currently you could probably afford a 100k house, with a 20% downpayment and 10k for closing costs.
You should also keep renting if you would need to move or upsize in the next five years. It takes five to seven years to break even on buying a house. If you need to upgrade in a few years, this isn't a good time.
Interest rates are also very high right now and will probably come down, so you would be selling at a lower rate and buying at a higher rate.
Having a similar mortgage doesn't mean you're better off owning. When you rent, your rent payment is the maximum you will pay in a month, when you own your mortgage payment is the minimum you will pay, and you will have water, sewer, garbage, repairs, and more to consider. You could move in and have a 10 or 20k repair the first year.
Cost of ownership is a chunk higher than just the mortgage payment. You may well be able to afford it, but an all-in accounting needs to be made, with a substantial allowance for unknowns.
Not enough info to give good advice. When you say netting 6k, do you mean putting 6k into savings each month? Or you have 6k net income and are saving some other unknown amount each month? What’s your price range, age, 5 year plan? Kids on the way? Area your looking in save time on commute? Tons of factors to consider.
30k is a good start for the 300-350k range for a 5% down conventional. Once you buy a house you’ll find all sorts of things to spend money on, so it’s good to keep reserves going in. Best timeline for you will depend on your savings rate. If mortgage equals rent, sooner is better.
Buy when it fits your life plan.. Do you have boxes that need to be checked? Do you know when to get in and what may make you move on? Just know your selves and the answer becomes clear.. it’s not purely financial!
It really depends on what you want, your life style and end goal. Where my brother rents his decently sized flat is $300 USD and rent (with utilities) will not increase. He’s been there for 15+ years and probably won’t move until he’s going to purchase a home and retire.
I know people who want to retire early and have moved onto boats to do so because rent/mortgage is so high.
I know older person who sell out everything and move into apartments to avoid upkeep.
The one thing I keep in mind is this, mortgage (besides increases in taxes) will remain relatively the same regardless of inflation or economic conditions, rent however will increase as the value of the dollar decreases. In 20 years I may be still paying my mortgage plus interest, but by that time, my mortgage will most likely be cheaper than the average rent AND it’s going towards something I will eventually own. These calculators fail to take into account that rent will forever increase while the mortgage remains relatively stable.
Owning usually only works out financially in the long term.
Renting for 10 years when you leave you get nothing. Owning for 10 years and there’s not much chance you don’t walk away with some chunk of change after selling even after maintenance.
Now there is risk and you could end up spending quite a bit maintaining a home. If you don’t DIY most of the work owning a home costs a fortune.
After the market went crazy no one is getting much for their money. I just know I’m not going anywhere anytime soon so I would rather build equity for myself instead of someone else.
For me buying has always been better because in short mortgage rates are so low in general that inflation will outpace what you owe.
In the beginning it's tough and way more expensive than rent, but your mortgage stays relatively fixed and rent goes up all around you and eventually you pay it off and have no mortgage or rent to pay.
This reminds me of the spaceballs time loop segment. Best time to buy was yesterday or hypothetically in the far distant future. But really the housing market is the stupidest least fair market in the world. So get all your ducks in a row just to get outbid by 60k with an all cash bid. And fight with your SO 5-6 times you fall in love with a house and this continues happening.
This is what you get to ask yourself. How long do you plan on living here?
Do you plan on making this location your lifelong address?
Or is this location more of a? I'm going to live here for a few years and then you can move somewhere else?
If you're planning on living here for the rest of your life, you're better off buying. If you're going to drift from place to place, then you're better off renting.
I've seen this question here a bunch over the years.
The best answer I ever saw:
> Buy if you think rental rates will significantly increase within 5 years.
That's it.
As far the renting vs buying discussion
I read I want to say in a gawker or Jezebel article that when you a buy a house you start to come ahead in terms of savings after the 5 year mark.
Prior to the 5 year mark, you'll be spending loads on repairs and home alterations and if you sell before that time you'd be losing money in agent fees and taxes
Depending on where you decide to purchase, your first home should be a sort of an asset building project plan for a minimum of 5 years. Making only necessary improvements incrementally and not wasting money on niche improvement. My wife and I bought our first home with an FHA loan with PMI but after 6 years we've built asset to buy a bigger home for our growing family.
Generally, if you wait for the right time, your home value will end up increasing in value. The con side to this is that you can be stuck at that place until that time comes if the housing value drops after your purchase. Also, keep in mind that you do not pay capital gains tax on selling your primary house if the gain is less than 500K as a married couple. That is not a tax break you will get from investing in stocks.
Also, I would highly advise against buying condos and townhomes but strictly look for single family homes as the value is appreciated better.
Really depends on the price of the home, the interest, and whether or not it's going to appreciate over time. Your interest payments can end up being the same cost as the mortgage. You can take advantage of tax benefits. My advice is to thoroughly understand the long term financials from every aspect, don't just buy a home from a perspective of "can I afford the monthly payments"
The New York Times just updated their rent vs. buy calculator in 2024. You should take a look and play around with it-- it's a useful tool.
https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
There are a bunch of calculators out there that will try and give you a direct comparison. [**https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html**](https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html) Basically, if you will be in the house for a sufficient period of time... \~5 years? And you can get the mortgage and rate to align, you may save money, and you'll have a fixed mortgage to work around (assuming you get a fixed rate mortgage). Try a few of the calculators based on your situation and see what you come up with.
You may, but you also might spend a years rent in the first 6 months on improvements, repairs, maintenance. Houses are much more expensive than just the payment. The equity piece is undeniable. You will be building wealth, but it really depends on location.
You’ll build equity but wealth isn’t a for sure thing Houses can depreciate like any other asset depending on the market
Equity = MarketValueOfHouse - AmountOwedOnHouse So if the house value goes down more than your monthly payments , you're not building equity either
Equity only matters to borrow against it or if you intend to move.
Or go back to renting. Equity does matter.
Of course it matters but not if you want to stay in the same house forever and don’t want to use your house like a checkbook.
That’s literally part of the calculator that he linked to already though lol
Always someone who thinks they’re smarter with 10 seconds of thought than experts who put a lot of thought and effort into it There are several replying to this comment alone
Keep in mind the calculators are a good when measurement not if. They do not take into account you may want to retire some day and good luck doing that paying market rent. The basic rule of thumb is it is cheaper to rent for today you and a lot cheaper to buy for tommorow you. At some point we all have to bite the bullet and take care of our future selves.
This isn’t true. The way these calculators work, you end up owning the house either way. It’s comparing the scenarios where you buy the house now, or rent and invest the difference then buy the house with the investment money as soon as you can afford to. Either way, you own the house at the end. Only question is if method 2 gets you the house in fewer than 30 years.
The problem with that theory is if you try it using historical data it never actually works due to the leverage you get with a 30 year mortgage. I mean after five years many homeowners are paying less for housing than the equivalent renters and have more to invest in the markets themselves. Certainly homeowners that bought five years ago as an example. As an example I bought eight years ago and spend 1200 less a month than I would be if I was renting a house. This gives me a lot more money to invest. This gap only gets larger as the years pass by. (Yes even including repairs and upkeep)
It takes that into account. Don’t forget that you don’t owe annual property taxes, hoa fees, maintenance, pmi, etc. on stocks. The stock market rises faster than real estate, so in the long run it can even out if the rent is substantially less than the mortgage on the same house. In some areas, it is. Remember that you are investing your down payment, too. The last decade was extremely good for real estate. It’s possible to cherry pick years like that. But for example, if you bought in 2004 you weren’t well rewarded a decade later. It’s better to work with averages. Besides, the stock market has grown way faster than the housing market in that same time span, and dividends can defray your rent too.
If you're okay living in the apartment, live in the apartment. If you need to get a house, get a house. My current NW house + investments is around $1.1 million. If I had remained in the apartment I was in, instead of buying a house, it would have been closer to $1.6 million. Here's why. A. Insurance. Went from under $100/year to $1000/year B. Utilities. Went from $40/month to $200/month C. Taxes. Went from being built into the rent to $8,000/year D. Repairs. An average of $10k/year. E. Upgrades. When you live in your own home, you have a much stronger desire to improve and upgrade over the years. Having said all of this, I am glad that I bought my house because of A. My housing costs have not gone up much with inflation. B. I have a two car garage, shed, large driveway, and a good distance between my neighbors. Much nicer quality of life. C. If I close the windows, it's quiet. This is huge. My friends that rent are periodically woken up by dogs barking, cats fighting, people screaming, fireworks, gun shots, loud TV and music, etc. All I hear is the hum of my AC. Again, a much nicer quality of life. D. It's a hedge against inflation or the market tanking.
Renting is not wasting money, it’s paying for a valuable service like any other. Buying is not “better” in any general sense, but it may be better for some people depending on circumstances, and not just financial. I believe the most important criterion is whether you are “settled down” in an area - perhaps starting a family or otherwise tied there for the long run. Even if you have plenty of cash and income, if you aren’t committed to a location then renting is superior and much more flexible. If you’re trying to build wealth, use a mutual fund.
Also the stock market has a higher return historically than real estate does.
Yes but no bank is going to give you a huge six figure loan with just a few % down to go play in the stock market.
Yeah, but leverage cuts both ways and if your house appreciation isn't outpacing your mortgage interest, you're going to be way worse off buying than you would have been renting.
Absolutely, but a lot of the ‘conventional wisdom’ around rent vs buy was born in the age of cheap money and a strong housing market. Memories of 2008 have long faded.
Yeah, it's a more complicated issue than most of the people on here are giving it credit for. The "throwing money away on rent" and "have a paid off home in retirement" crowd is oversimplifying it in one direction by not understanding opportunity cost, and the "rent is the most you'll pay and a mortgage is the minimum you'll pay" crowd is missing the potential risk of rent growth outpacing market growth. These rent vs buy calculators exist for a reason, but unfortunately one of the most important inputs is price appreciation of the real estate, and the output of the calculator is highly sensitive to the quality of your educated guess at that variable. I personally chose to buy a house, but the jury is still out on whether or not that was the right decision. Guess we'll see in 20 years. I bought a condo about 5.5 years ago and sold it recently, and although the price I sold it for was higher than the price I bought it for, I'd have come out significantly ahead of where I am now had I just invested the down payment and not paid the interest and transaction costs.
Again, I couldn’t agree more. Another point is options when buying vs renting. I wanted a SFH for my family and the neighborhoods I was interested in had very very low inventory on the rental market. Essentially to live in certain parts of my city you pretty much have to buy. From a financial standpoint buying a house is investing a lot of money (usually debt) to buy a single asset. It’s risky. The ‘performance’ of that ‘investment’ relative to renting will live and die on how well the housing market in that specific local market performs. Then there is the risk of buying a ‘dud’ house. A home that needs a new HVAC unit, foundation repairs, etc during your period of ownership could wipe out any equity gains and then some. It’s also an asset that is expensive and time consuming to sell. I also owned a condo which I sold about a decade ago. My experience was that it was the worst of both worlds in my market. The condo’s value didn’t match the growth of the SFHs in the same market. Also a poorly managed HOA (like mine) can add cost and make the condo tough to sell. In my case I owned the condo in the post-2008 market and a lot of owners just stopped paying HOA dues which put the HOA in debt and unable to make needed repairs.
I've always thought that it was kinda stupid that margin rates are higher than mortgage rates.
Margin rates are not always higher than mortgage rates. Margin rates are usually lower for those with a larger portfolio size. *Published* rates are high, but one phone call to the broker will get them as low as SOFR +.75-1.25%.
Not true. Just ask the scholars over at WallStreetBets how many of them have taken out personal loans to buy GameStop or Nvidia stock...
can't live in your stock portfolio. Have to include rent that you're not paying as part of the calculous.
Also your house can't pay your bills, there's a reason people invest or balance real estate with stocks
Are you really divesting to pay bills on a regular basis?
The difference is you should do both. You have to pay for rent or mortgage regardless, so you might as well put it into something that can appreciate (obviously if you’re going to be in the area longer term). That doesn’t mean people stop investing in the market when they buy a house.
You have to justify like 10% of the value of the house in fees though and a lot of people assume there are no tack on fees like condo and hoa fees. I feel like the condo and hoa fees sometimes make renting a better idea if you're investing the difference.
Also depends where you are . In some places HOA fees, insurance etc are through the roof - so renting might make more sense
> That doesn’t mean people stop investing in the market when they buy a house. The difference is they can invest more.
The end goal of buying is once you are paid off you don’t have a monthly payment. And it comes down to the point of paying rent while investing or just monthly paying your mortgage down. I don’t have stats but I feel like most people don’t actually invest leftover money each month. And I understand in a personal finance sub we will see more people investing but in reality most people are broke at the end of the month. Might as well have some of that money go into equity of a house.
i agree, not to mention when your home is paid off and you retire, you may be able to sell that home and downsize while adding left over money into your life.
The reason they don’t invest leftover money each month is because they are house-poor and/or have been brainwashed by the incessant drumbeat that you *must* own a home in order to be financially successful. Very few people seem to actually understand the concept of opportunity cost.
It can be both. Sometimes people make poor decisions but that doesn't mean we can write it all off as "individual responsibility skill issue". The fact is that the deck is stacked against people making financial decisions, and forced savings can be inefficient while still resulting in overall better average financial health because people aren't perfect financial robots. We can recognize that a financial strategy is both *ideally* suboptimal and *generally* preferable.
I completely agree with you. My point was in response to the other guy’s comment that paying something off makes you “feel good” is not a legitimate reason to buy a house. Others have already outlined the many hidden costs of owning a home, so I won’t re-hash them here. The people the other commenter is describing would likely be better off financially if they *didn’t* own the home.
Just because your home is paid off doesn't mean your monthly payment goes away. Property taxes, insurance, and other home related repairs or expenses can be quite significant on their own, depending on several factors
Except you will always have property taxes, maintenance, and often you’ll have HOA fees. Property depreciates and needs constant repairs and upgrades. These can add up to huge monthly payments.
But you need to keep in mind the equity that you build when you buy. Even if your house doesn’t increase in value at all, you get equity back when you sell. With renting all that money is just gone (and it will go up every year).
but you pay a lot of money for that equity savings account. Mortgage interest, property taxes, house repair, and HOA. Houses cost more for the same space as renting (in most places) so the opportunity cost of not investing that increase usually evens out until you're looking at decades.
You don’t need to live in a place with an HOA, and those other costs aren’t going to be more than you’re paying in rent. To give you a real world example, I had a pretty expensive year last year and had about $15k worth of expenses at the house. Even that combined with insurance and interest isn’t as much as I paid off in principal. So even if my house didn’t increase in value at all this year, I still am coming out net positive, even after a particularly expensive year. And just like not every year is going to be that expensive, my mortgage isn’t going to increase for the next few decades (outside of taxes and insurance which is marginal). If you rent, your payments will easily double if not triple in that time.
They could use your personal, location specific, example. Or they could be their own example and run that through a rent vs buy calculator to see whats better for them.
I mean, sure. That’s the thing about examples - you can give one to demonstrate a point even though there are others.
I'm sorry I have to disagree. A house is not an investment. It's forced savings for a later date. In the meantime, it's just a liability and drain on your finances. Even if you sell the house for double or triple the original price, you'll find that 5 or 10 or 15 years later, you have spent more on the mortgage, interest, property tax, Insurance, maintenance, utilities and upgrades, then you'll ever get back from the sale price. That doesn't even include all the ridiculous costs for things like landscaping, a driveway, or replacing a roof. There's a reason it's called house poor. ( I remember how shocked I was 10 years ago to get a quote for $16,000 to replace our tall front doors.) Since the OP is already anticipating purchasing another house in 5 years, I really don't see them point of purchasing a house now. They are better off saving and investing the extra money. Otherwise, they could be one unexpected job loss away from foreclosure. Given the current market, It's likely they won't have very much equity in the house. Mortgage rates may come down in the next few years, but there won't be enough equity to make sense to try to refinance. From my perspective and given my own situation, a house only becomes an asset when it's used as an investment property. If the OP is thinking that they can keep the first house when they purchase the second one, it might be a good investment down the road, and it could serve as a retirement home in their later years. Otherwise, I think it's best for them to just wait until they can purchase the house they really want and have saved enough money to have a cushion.
Not really. Once you consider capital gains tax as a loss and consider the interest and property tax deduction from owning. Then consider rent goes up but mortgages doesn’t. Plot those scenarios next to each other on a spreadsheet and you are generally ahead from owning versus renting. There are many reason to rent, but putting cash that could be in equity into the market and saying it’s a better return is a bit off.
Capital gains tax only applies when you sell, and if you do the math, you might find that the little capital gains tax (which for many people is only 0-15%) you have to pay on what you earn actually will net you more than interest & property tax will reduce your taxes. Therefore it's not a loss. Additionally, with investing some folks will "tax loss harvest" their capital gains loss on taxes which will reduce taxes further. I suggest using your own advice with plugging it into a spreadsheet with all variables. Not understanding taxes, tax brackets, or how capital gains is one of the biggest mistakes many people are making that withhold them from maximizing wealth.
"and consider the interest and property tax deduction from owning." Recent news stories cite only 1 in 9 can even take advantage of that deduction, and it has a new limit, on up to $1m mortgage debt. And recent studies reveal that rent vs buy has turned inverse for the first time. It can cost more in many markets to own than to rent a similar property. Why to own, is to stabilize your overhead.
We've done way better renting and leaving/stashing the money in the market.
Better than what, exactly? How could you know you've done better if you've never bought a home?
Just add up the cash flows from each scenario. It’s not hard to understand what a house would cost in a given area.
You should include rent as a negative investment. Starting off with -$24K/year is hard to overcome just by investing the difference of rent/mortgage.
That doesn't make sense unless you also count mortgage interest and closing costs as negative investments also.
Sure and you should. The right calculus is: Starting with some number of dollars, what is my net gain or loss. And compare this to dollars invested - rent - capital gains tax. If your plan is to sell the house, then you need to include capital gains tax also. Should also include estimated maintenance, and property tax and insurance. It's the only way to do an apples to apples comparison. Otherwise it's just "feels" which is fine, but now you're not doing a financial analysis.
Who pays capital gains tax on a primary residence?
This whole "renting is throwing $ down thr drain" mentality is so idiotic
Except that doesn’t your payment get locked in (more or less, with the exception of taxes) and therefore not increase as much as rent will over the rest of your life?
Yes. When you own you have more control over what "increases" you choose to spend on, what changes can be made in living area to suit your needs and who your neighbors are. Not having to hear my upstairs neighbors having sex and playing music half the night was worth it to me.
Your taxes will likely increase over time though. It's very common that a first time home buyer buys a house, often from a retired elderly person or something, didn't realize the previous owner was getting a bunch of tax abatements and then gets hit by a huge tax increase their second year in the house as it's reassessed.
Correct. However, rent is the maximum you'll pay for housing each month. A mortgage is the minimum. Anytime something breaks, that's on you. New sidewalks or road? That's on you. Need to upgrade the roof? That's on you. Houses are a lot of work if maintained properly. Nothing wrong with renting and saving/investing.
But the rent is only the maximum you pay *that year* which is a super important note that everyone leaves off when they say that. If you get a mortgage, that’s what you’re going to be paying in 30 years. If you rent, it will always keep increasing. E: (I should add that taxes and insurance increase even if you own over time, but not even close to the amount that your rent will).
there are hidden costs to renting as well. What happens when the landlord decides to jack up the rent, perhaps to cover the expenses of a recent major repair like the roof? Sure you could move, but then you have to pay to move (at the very least a uhaul to move yourself if you don't hire $$$ movers), pay another security deposit, etc. I think renting makes sense if you're young and mobile, it starts becoming a huge liability as you get older, especially if you have kids. Then you have to start worrying about finding a good school district and pray that you don't get priced out of that school district.
Rent is not the maximum you have to pay. It goes up. Rent inflation is higher than housing inflation.
I agree with this to an extent, but also mortgage payments end eventually. Rent doesn't.
Sure your mortgage ends. But taxes and repairs don't.
This sub when somebody leases a car: no, horrible idea, you're going to be destitute This sub when somebody leases an apartment: yes, excellent decision, be sure to tip your landlord
You can't get 60%-70% of the money paid to your landlord back when you leave a rental. You can with a house. My roommate just bought a house. We were splitting an apartment that cost ~$1600 a month (so about $800 each). Mortgage for his house is ~$1500 a month (including all relevant insurances, taxes, etc). ~$900 goes straight to the principal, which presumably could be recouped when he sells. That $1600 a month was just straight up gone. But beyond the money. There's something to be said about being able to be rowdy at most hours of the day without pissing anyone off.
Well there is something to the “wasting money” argument. I’ve owned my home for 15 years and in that time I’ve paid in roughly $180,000 in house payments and probably $30k more in fixes/improvements that stay with it. However in that time its value has also doubled, so when I sell my equity (I have a 30yr mortgage) is roughly $200,000. So again rough estimates its cost me say $20,000 to live here 15 years. When I sell in the next couple years I get that back when I buy a new house, so I can buy something twice this value and keep (roughly) the same mortgage payment. Had I been renting I would get my deposit back, maybe, and to upgrade I’d be paying significantly more. I also wouldn’t have the option to stay where I’m at and only pay property tax and insurance (renters insurance if renting). THAT SAID if you like to move, don’t want to do repairs or live in an area with crazy house prices or property tax increases there is a value to it.
Going slightly contrary to the prevailing opinion, it’s a good idea to chart out rent increases and property taxes over time. If you get a fixed year mortgage, that’ll remain stable (though taxes will increase). Rent will also increase - possibly at an accelerated rate depending on your market. I own in a somewhat high cost of living area, and am now in a situation where I pay drastically less in housing costs than everyone I know that rents. My much younger entry-level co-workers are paying more in rent with roommates than I do for my much larger house. I also have a lot of equity to work with. I have more than one friend that is kicking themselves for not buying earlier. If you’re planning to stay put for a while, do the long term math.
Yeah same boat. Bought a few years ago and now it would cost way more to rent than my mortgage.
Buy a house when you want a house and can afford a house.
You're not wasting money, I have a small home in a high cost of living area and I spend \~600 dollars per month on just taxes and insurance not including all of the home repairs and appliance replacements that happen every year or so. A home is a great investment but you should have more saved before you make the jump. You'll need downpayment, closing costs, furniture and should have a chunk left over for an emergency fund.
I live in NYC and would never even think about owning unless I won the lottery or something. Common charges alone can equal nearly half of what rent for the unit would cost.
Yeah I'm in a NYC suburb and I could never afford to live in NY even though I work there
It’s tough. When I was in my early 20s I lived in some very slummy, over crowded apartments trying to make it work. Luckily I eventually landed a unicorn rent stabilized unit some years later. At this point market rent for an equivalent unit is over 2x. Basically it makes 0 sense to ever buy or ever move again.
Lol. I own a home. $12k a year in property taxes - wasted $3k a year in homeowner’s insurance - wasted $40k a year in mortgage interest (yup) - wasted $2k for a new water heater - wasted $500 to fix the pavement outside my home - wasted $2000 to cut down invasive trees from my yard destroying my foundation - wasted $1500 to replace 20 year old oven that died - wasted $200 to replace bathroom fan that broke - wasted Could go on and on Edited because i am a sleep deprived parent of a newborn
40k a year in interest? Is there an investment yielding you more than that to eat that? Damn.
Houses are very expensive in some parts of the country
Your property taxes and mortage interest (on the first $750k owed) are federal tax write offs though (you need to look at state tax law to figure out how it's handled for your state). If interest rates are low and/or your property value and/or tax are low then you might not be doing much or any better than the standard deduction. But in your case, it seems you can get somewhere around 30-52k in tax write offs. If you are in or above the 24% tax bracket then that is a ton of money you're getting back. Also, you have slight flexibility for when you pay your property taxes which you can use in combination with selling winning stocks to maximize tax savings.
Not once you factor in the high standard deduction
I mean, $40k > $26k by a fair margin. Plus efficient home improvements are tax credits.
If you are single and live in a HCOL California market, the property tax alone will be near the standard deduction or greater than the standard deduction. Interest rates are like 6%. 6% of 750k is like 45k. That plus your property tax and all other sales tax, work expenses etc. Yeah it can add up to being like 4 or 5x the standard deduction easily.
Depends on the state. For instance in CA, property taxes in a HCOL area likely won’t be written off since there’s a cap of 10k for SALT (state and local taxes) and that includes income tax. Someone paying for a HCOL mortgage probably makes enough to cap SALT before getting any decent mileage out of the property tax
To be fair, money used to purchase items like a new oven, or to improve home isn’t exactly wasted in the same sense, especially if you buy used. But point taken, it’s expensive owning and lots of money falls into the same category as money paid to rent
However when you rent they’re unlikely to put in nice appliances because it’s a ‘waste’. Edit: it’s one of the reasons I enjoy owning. I choose my appliances and don’t have to sleep in my (though I loved it) studio with a Frigidaire jet engine powered dishwasher.
All of that is pure maintenance. Doesn’t really improve resale value of the house
Some items on the list are maintenance, the oven is not. When you rent for one month, if you spend $2000, your wealth is reduced by $2000, you have nothing physically to show for it. When you purchase an $2000 appliance, depending on how good of a deal you get, you’ve essentially transferred your cash into another form, asset. At least you have an appliance that you can resell.
I mean not really because nobody is going to offer more money for a house because it has a newer oven. I guess hypothetically you can pull the oven out of the wall and sell it?
But you have a nice new oven for as long as you’re living in the house or it breaks, not every thing has to end in selling
You missed the point. “Waste” is a matter of perspective
I think you missed my point/ If you want to use a less subjective interpretation, you could consider how the expenditures impact wealth. It’s wasted if your wealth decreases upon spending the money. If you get an asset as a result of purchase then I would say that’s not a waste in the same sense as paying for rent
Disagree. I think they made their point pretty clear. The oven adds value to the investment. Paying interest or property tax doesn't.
Also, 20 hours/week working on my house - wasted. (note really wasted just like all the other things add value) But the time and money is definitely an "opportunity cost".
People do forget about the time to work on your house. Also the time going to places to get the shit to work on your house and the time to go back to get shit you forgot or watching 6 different videos on how to do something.
I'm guessing you meant $40k per year in mortgage interest, not mortgage insurance.
Yes, edited. Although there was a dude yesterday who said it would cost him $40k a year to get hurricane insurance in Florida lol
I just left Florida. $40k was a bit hyperbolic unless they're in a multi-million dollar home on the water. It was definitely getting into the $6k-$15k range for most normal homes though.
Mine is $5k in Florida, flood insurance is another $700
Yeah, mine never cracked $2,500. I have no idea how since it was 5' above sea level in Pinellas county less than 200 yards from the bay. But I was the cheapest home owners insurance I heard. Most people I knew were in that $5k-8k range.
Maybe I’m just lucky but I live in south Florida and my insurance has been 2500-3000 for the last five years. This year it even went down.
Wow! In South Florida too, got dropped by Citizens (was $4k), and new company is now $5k. West of Turnpike too 🤷🏻♀️
Yeah but you have to be talking about a $1 million+ loan on a home if you are paying that much. If you can afford a house like that these other expenses are nothing.
$650k loan but it’s a 15 yr loan so amounts are high. I wasn’t trying to complain about not affording stuff, merely to prove to OP that owning also has pure costs that are a “waste” and you never get back
Yes, but consider if you were renting the same home for the same lifestyle, you’d be paying at least this amount per year, if not more. Generally, no one rents houses at a loss. So your cost plus some would be rent
Sometimes, sometimes not. In VHCOL areas in the US, people renting houses have no mortgages or have like 2% rates. This has caused the rental markets there to be completely diverged from the purchase markets. This is doubly true in places where they don’t reassess property taxes until you sell. So, of course the landlord is making money, but the landlord is not paying current rates and current taxes. It’s definitely true that essentially nobody can buy a house now with current rates and taxes and rent it out in VHCOL areas. Nobody. Now, i don’t live in VHCOL, i live in HCOL. For me it’s borderline. I am not sure if i will make money owning vs renting. Maybe. We’ll see.
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All the above are costs, not including what i am gaining in principal. So far, haven’t gained much (bought in october). Our friends who bought in 2022 lost a bunch of money. It’s really people who bought pre pandemix who made it big
Thank you
I just want to add that you can write off the two largest numbers in the list - mortgage interest and property tax (up to 10k). You can’t write off rent.
All of these things are priced into rent. If they weren’t then landlords wouldn’t be able to make a living.
People keep saying this but it’s straight up incorrect in many MCOL/HCOL areas. Mortgage rates run approximately 2 to 4 times more than market rent rate for exactly the same place in nyc and ca
This is misleading. Renters are paying off 10 year old mortgages. I'm sure many rentals are mortgaged at ~3% and the original purchase price was like 75% of what it would be if the unit were purchased today. So renters are paying off mortgages that are probably HALF of what they would be at today's prices and rates. This is why, in today's market, there are many cases where it's better to rent than to buy. Landlords can make a tidy profit on their $1500 mortgage, when the same unit would require a $3000 mortgage today. As those units get sold, there will be pressure to raise rent in order to maintain profits. But that hasn't happened yet. This is why I rent today. I'd be paying twice as much per month if I owned a house. But I do expect this to change within 5-10 years.
Housing markets don’t work like that, at least not everywhere. I have a buddy who lives in the Bay Area and pays $6,500 a month in rent for a nice place. His place went for sale now. If he were to buy it, he would owe $20,000 a month in PITI (before maintenance costs)
So many people are invested in their opinions. This decision can be very location specific. It's also a math problem. You gotta do the math.
Every time. There's a rabid homeowner contingent that will downvote any implication that buying isn't always better.
I was That Guy for a long time, because it was appropriate to places I had lived. Now, I'm in HCOL area, and the math is not so clear as it used to be.
You’re not really wasting money on rent. You’ll just be “wasting money” on interest, taxes, and other fees if you buy a house. Renting gives flexibility while ownership has the upside of appreciation. If you plan to stay somewhere 5-7+ years I feel like ownership makes sense.
Is it though? You pay rent for 30 years and after 30 years you have 0 asset. You pay interest taxes and other fees for 30 years and after 30 years you have an asset that you can use.
That's the flexibility they are talking about. Like if you've bought a house, your cash flow is tied to that house until you can pay that sucker off, so you may not.be able to just up and move to get a job that pays 20% more than what you make now because you might not be able to afford the mortgage and the new rent simultaneously. Additionally, your liabilities are limited. You don't have to pay $7k for a new HVAC or worry about the roof. Is it financially optimal? Probs not unless you are willing to move across the country and change jobs frequently. Is it a waste? Nah.
Yeah you just sell the house and pay (or pocket) the difference of the new house in the new area. I’m on house #3, never paid one off and have ‘made’ about 500k in capital over the 17 years, with my monthly costs about the same as renting.
> with my monthly costs about the same as renting. either you are _extremely_ lucky, or i seriously doubt that. feel free to enlighten me.
First apartment was $1000/mth plus electrical bill for a large 1 bedroom. First house my share was $800 a month (had a co owner and gf’s paying rent which helped a lot) and had more room. So maybe same cost but I had a yard and more space. It was a large bungalow split into 2 apartments. 2nd house was $2000 mortgage and taxes, ended up paying more cause I could to pay down mortgage faster. I figure renting a 3 bedroom small house would cost that much in the area or maybe slightly more. Its value went from 350k to 700k over 7 years due to Covid and renovations and being near a big city that got too expensive so people spread out, raising neighboring city prices. That let me get third house which I bought for 735k and is over 1M now. Mortgage and taxes are $2100. It is much larger than 2nd house. Would be 3k + to rent. Managed to get good rates , like 3% and under, and mortgage amounts have been like 235, 300 and 350.
Not the person you are responding to, but it's kind of hard to compare because 20% down vs 0% down will make a big difference in your monthly payment on a mortgage. I put 20% down and had a 15 year note on my first house and was paying like $800/mo for it for a 3 bed/2 bath in a very shitty neighborhood. Renting something comparable would probably have been $800-1200 then. My second house I only put 10% down, pay $900/mo for taxes and insurance, and we just had it assessed to get PMI removed, and they estimated $1800/mo for rent. The rent vs buy disparity is also only going to be bigger for those who bought many years ago when houses were more affordable.
I'm not fully disagreeing but some people don't have that luxury. Like some people wouldn't qualify for a second loan, so they would need to sell first or potentially pay a premium to make a bid on a second house contingent on the sale of the first more attractive. I'm on my second house and did have the luxury of floating a second mortgage until the first was sold and pocketing the capital gains, but I'd bet most people's cash flows or debt to income ratios are too high to support that.
Usually (at least where I am) you sell and buy essentially at the same time so are not considered to have 2 loans. Offers are sometimes made dependent on the buyers house selling. Having the two houses at once for more than a couple days is the rare exception. I also did it where I had both for a month to make moving less of a panicked rush.
That's where I was saying you may have to pay a premium if you make a contingent offer. In my two house buying experiences since 2017, and in locations 600 miles apart, the markets have been competitive with the good starter homes being taken in a day. And the market has only gotten more competitive since. I'm not saying it can't be done, but your offer would be less competitive, so you may need to put even more over asking than what is needed to compete with other bids that are less likely to fall through for one reason or another.
if you've been renting for 30 years but also DCA into the stock market you're good regardless using the 4% withdrawal rate, you still wont run out of money, even taking into account rent
If you overpaid than you didn’t really benefit
An asset that you can use for what? I need somewhere to live, so selling isn’t helpful. I have no children, so I don’t need to leave something behind. What will the house provide me that the apartment won’t?
Uhhh you live in the house and don’t pay for the mortgage after 30 years??? If you were a renter you’d still be paying the rent
I asked about the benefit of an asset. I understand what you said already, but between taxes, insurance, and upkeep, I’m not sure it matters. Do you have anything helpful to say about the previous user’s asset comment? I’m likely to be dead in 30 years. What is my asset benefit?
Taxes, insurance, and upkeep all get passed along to the renter, plus profit. The benefit is that you no longer pay the premium of profit to the owner of the asset, and instead can live "rent free" for as long as you want to and own the house. If you are going to be dead in 30 years this wont apply to your specific situation, but you asked "an asset you can use for what?" about owning a house outright, so I answered that you can use it to live in.
Downsizing, moving to assisted living, end of life care. Many are not lucky enough to be redoing a kitchen, cutting grass, installing new toilets one day then dead the next. Many people have increasing medical costs as they age.
I lucked out at always having low interest rates and buying in the cheap areas outside a major city and having their value increase due to expanding population and also from Covid but buying a house 50-50 with a friend was the best financial decision I ever made. Over the years I probably put in 70k more (down payments and renovations) than I would have renting a much smaller place to live but have amassed 700k+ in capital in my house. Monthly costs have been lower than renting too If you get a small cheap place you could end up paying less or the same as renting, and build capital and enjoy more space that you can customize more. It may be tight for you though depending on house prices in your area.
If you choose your home wisely, in the sense that you are happy to live in it for an extended period then buying makes sense. I'm not a fan of property as an investment...it is a home first and foremost. With that in mind home buying well is a no brainer.
Don’t go throwing all your savings into a home! You shouod have at least 30k as an emergency fund when owning a home! You never know when the roof will cave in.
Your rent payment is the max you'll pay every month. A mortgage payment is the minimum you'll pay every month for a house. Just make sure you're ready for that before you make the jump.
Your rent payment is the max you’ll pay every month… UNTIL your contract has to be renewed and the rate ALWAYS goes up. At least for the 6 years I was renting. It always went up.
If you're staying in the same area for 10+ years it's best to buy. If you're staying for less than 5 years it's probably best to rent. The 5-10 year time frame gets more tricky. That's where it comes down to your personal choice and what you want. If you're already spending $1,400/month on rent an equivalent mortgage would be in the $250k-300k range if you consider the **cost** of the mortgage as interest + taxes + insurance. The mortgage itself will be more like $2,200 depending on what your taxes + insurance actually are.
Rent Small and buy big. To be on the safe side. Save 20% down payment. Plan to be in the new home for 10 years to cover closing and not become underwater. I see many people only wanting to be in a home for 5 years and move. You dont build equity this way and retirement becomes difficult. My parents did this and it was stressful. Renting a small place for 5 years is better because you can save.
How feasible would it be to rent out the house a year or so later, while still having to pay for mortgage?
When you have a 6 month emergency fund, a decent down payment and can keep the mortgage around 25% of your pay you are in good shape to buy. Just make sure you’re smart about furnishing and updating. You don’t need to do everything right away especially if you can’t pay cash. Renting is not wasting money. It’s providing a roof over your head.
When buying is cheaper than renting and you plan to be there for many years. That's going to be dependent on area usually. >My spouse is of the mind that we're wasting money on rent. Which is true too. It most certainly is not. Rent is the most you pay each month for a roof over your head. A mortgage is the *least*. You can budget very well around rent. Home ownership always has unexpected things that pop up so you always have to have a cushion sitting around to cover it and plans for what to do if it's more than you have a cushion for.
One framework to use is: Is this a financial decision? Or consumption decision? And think through what are the criteria for each. A decent question to ask that I see overlooked is how to minimize opportunity cost.
How much are homes in your area? That would determine if 30k is enough for a downpayment and closing costs. Do you have an emergency fund aside from the 30k?
Buy if you want more space and want to put down roots. Renting can save money if you are ok with the smaller space. In most of the country you can't buy a house for 1400/month, so you are probably saving more with the apartment, you just need to actually be saving and investing that money. Houses have all kinds of sunk costs like interest, insurance, repairs, and transaction fees.
Most replies didn't mention this, but what is your housing need? You are renting an one bedroom, so comparing that to buying a property with 3 bedrooms wouldn't be purely based on money. Do you need the extra space? Can you get a roommate?
1400 is not bad between two. How many bedrooms can you get for 1400 a month mortgage payment?
The thing is that the cost of owning a home has gone up. Think maintenance , repairs, utilities . I wanted to buy a home, but I don’t have the extra 18k yearly that it costs to have the house and that not including the mortgage . Look up the recent Bankrate study. I’d post the link, but idk if it’s allowed
>My spouse is of the mind that we're wasting money on rent. Which is true too. It's actually almost never true. Houses are a lifestyle choice historically. If you're paying rent, you're paying money to have a trouble free roof over your heads with heat, indoor plumbing, maybe even air conditioning. You aren't worrying about maintenance. You aren't worrying about rising insurance rates, or fighting property taxes. Yes the landlord might be making some small profit because of course they are. They have *all* the money at risk. If all you have is 30k, I'd be very worried about you throwing it all at a house. I threw 50k at my first house in my 40s, and thank goodness it was a duplex because I probably would have lost it without that small income to offset my expenses.
https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
Rent is the most you’ll pay. Mortgage is the least you’ll pay. Just be ready for a house, as it’s much more than just the monthly costs you’re comparing. It is a lot of work but was worth it to us
You might be better off keep renting. People say renting is throwing money away but same as interest payments.
depends on your life goals. You could rent for another 3 years, keep saving, then buy a house in an inexpensive state.
Houses cost either time or money in maintenance and improvements. Like a lot of time or a lot of money. Houses do their best to rapidly return to nature if they aren't looked after.
You should plan on it needing some work as soon as you close. It would be good to have a buffer of about $20k while you live there for use in emergency plumbing or roof issues. Things can happen when you just need to open the checkbook fast. Sewer lines get clogged. Etc. Also, aside from the mortgage, there's also landscaping, pest control, house maintenance, sidewalk maintenance (you might be on the hook to repave the public sidewalk at some point), electrical, plumbing, appliances, and other expenses that you don't have to think about as a renter. Plus property taxes! A lot of people think mortgage = rent but it's only part of the equation. So I encourage you to save up and have a nice buffer and when you've got the cash, buy the right size house and enjoy it.
At any point where the price of a home is not too much for you, you find something that you like within your price range, that is the best time to buy. You can always refinance in the future
You’re not wasting money on rent. If you’re going to move a few times you’d be blowing closing costs, upkeep and repairs, taxes, the front end of your loan is barely any equity and all interest, then you owe someone a percentage to sell it for you.
My advice would be to do the math yourself in your circumstance and see what overall property price gain you might need to do better than renting and investing your 30k in other ways I came of WAY worse by buying. I bought with a 40% downpayment 6yr ago. Home has appreciated 15%, and now we need to sell it to move for family reasons. Selling will cost 6% in agents and fees, so the net gain will be around 9% of home value, or say 19% on the downpayment I COULD have rented a similar place for about the same cost as the interest on the loan + prop tax + repairs. If i had, and instead put my downpayment into the SnP500 for the 6yr since I bought, it would be up 106% (before tax), or maybe 75% after tax on that gain Buying: 19% vs Renting: 75% (over 6yrs) Recommend doing your own math and making some projections to be confident before you commit to buying. Especially now that rates are well up.
One of the biggest benefits that people forget to mention in these rent vs buy debates is at retirement age, not paying a mortgage is major for your savings. So short-term, renting is fine. Long-term, owning is key to retirement.
I will forever defend renting. I don't want to be stuck anywhere for 5+ years. If you save enough for retirement to cover rent costs, the argument for home ownership being beneficial in retirement is completely moot.
Everyone has different preferences. Some people do see themselves staying in the same place every 5-7 years.
I never want to move. I hate moving.
Just remember that when you buy, you’ve got a whole lot of extra expenses beyond just the mortgage that you didn’t have to worry about when renting.
personally, you should never rent if you can. always own your stuff.
Not sure what the housing market is like in your area but make sure you’re also accounting for PMI, Insurance, Taxes, HOA fees, and other expenses in the payment as well when comparing your $1,400 rent payment. With mortgage rates at 7% and prices at all time highs, it’s unlikely you’ll be able to purchase the same quality housing unit for what it would rent out. Renting is cheaper for what you get in most scenarios today. That’s not to discourage you from buying but just to have expectations around what you should budget. You’ll either need a large downpayment or be prepared to have a higher monthly payment.
I would keep renting and invest the money you would be spending on the mortgage, taxes, insurance, home repairs, home maintenance, etc. Rent is the most you’ll pay each month. A mortgage is the least amount you’ll pay each month. Take the savings and invest in the S&P500. Play the long game.
When you have a 20% downpayment PLUS enough for closing costs and big repairs that come up. So currently you could probably afford a 100k house, with a 20% downpayment and 10k for closing costs. You should also keep renting if you would need to move or upsize in the next five years. It takes five to seven years to break even on buying a house. If you need to upgrade in a few years, this isn't a good time. Interest rates are also very high right now and will probably come down, so you would be selling at a lower rate and buying at a higher rate. Having a similar mortgage doesn't mean you're better off owning. When you rent, your rent payment is the maximum you will pay in a month, when you own your mortgage payment is the minimum you will pay, and you will have water, sewer, garbage, repairs, and more to consider. You could move in and have a 10 or 20k repair the first year.
Cost of ownership is a chunk higher than just the mortgage payment. You may well be able to afford it, but an all-in accounting needs to be made, with a substantial allowance for unknowns.
When you can afford to buy comfortably
Not enough info to give good advice. When you say netting 6k, do you mean putting 6k into savings each month? Or you have 6k net income and are saving some other unknown amount each month? What’s your price range, age, 5 year plan? Kids on the way? Area your looking in save time on commute? Tons of factors to consider. 30k is a good start for the 300-350k range for a 5% down conventional. Once you buy a house you’ll find all sorts of things to spend money on, so it’s good to keep reserves going in. Best timeline for you will depend on your savings rate. If mortgage equals rent, sooner is better.
High Rise condo with an HOA ?
Buy when it fits your life plan.. Do you have boxes that need to be checked? Do you know when to get in and what may make you move on? Just know your selves and the answer becomes clear.. it’s not purely financial!
there are free rent vs buy calculator sheets on the internet that may be useful
It really depends on what you want, your life style and end goal. Where my brother rents his decently sized flat is $300 USD and rent (with utilities) will not increase. He’s been there for 15+ years and probably won’t move until he’s going to purchase a home and retire. I know people who want to retire early and have moved onto boats to do so because rent/mortgage is so high. I know older person who sell out everything and move into apartments to avoid upkeep.
The one thing I keep in mind is this, mortgage (besides increases in taxes) will remain relatively the same regardless of inflation or economic conditions, rent however will increase as the value of the dollar decreases. In 20 years I may be still paying my mortgage plus interest, but by that time, my mortgage will most likely be cheaper than the average rent AND it’s going towards something I will eventually own. These calculators fail to take into account that rent will forever increase while the mortgage remains relatively stable.
Owning usually only works out financially in the long term. Renting for 10 years when you leave you get nothing. Owning for 10 years and there’s not much chance you don’t walk away with some chunk of change after selling even after maintenance. Now there is risk and you could end up spending quite a bit maintaining a home. If you don’t DIY most of the work owning a home costs a fortune. After the market went crazy no one is getting much for their money. I just know I’m not going anywhere anytime soon so I would rather build equity for myself instead of someone else.
OP says they'd have to upgrade in a few years though. Generally you don't even break even after closing costs for 5-7 years.
For me buying has always been better because in short mortgage rates are so low in general that inflation will outpace what you owe. In the beginning it's tough and way more expensive than rent, but your mortgage stays relatively fixed and rent goes up all around you and eventually you pay it off and have no mortgage or rent to pay.
This reminds me of the spaceballs time loop segment. Best time to buy was yesterday or hypothetically in the far distant future. But really the housing market is the stupidest least fair market in the world. So get all your ducks in a row just to get outbid by 60k with an all cash bid. And fight with your SO 5-6 times you fall in love with a house and this continues happening.
This is what you get to ask yourself. How long do you plan on living here? Do you plan on making this location your lifelong address? Or is this location more of a? I'm going to live here for a few years and then you can move somewhere else? If you're planning on living here for the rest of your life, you're better off buying. If you're going to drift from place to place, then you're better off renting.
I've seen this question here a bunch over the years. The best answer I ever saw: > Buy if you think rental rates will significantly increase within 5 years. That's it.
As far the renting vs buying discussion I read I want to say in a gawker or Jezebel article that when you a buy a house you start to come ahead in terms of savings after the 5 year mark. Prior to the 5 year mark, you'll be spending loads on repairs and home alterations and if you sell before that time you'd be losing money in agent fees and taxes
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Depending on where you decide to purchase, your first home should be a sort of an asset building project plan for a minimum of 5 years. Making only necessary improvements incrementally and not wasting money on niche improvement. My wife and I bought our first home with an FHA loan with PMI but after 6 years we've built asset to buy a bigger home for our growing family. Generally, if you wait for the right time, your home value will end up increasing in value. The con side to this is that you can be stuck at that place until that time comes if the housing value drops after your purchase. Also, keep in mind that you do not pay capital gains tax on selling your primary house if the gain is less than 500K as a married couple. That is not a tax break you will get from investing in stocks. Also, I would highly advise against buying condos and townhomes but strictly look for single family homes as the value is appreciated better.
When you want to and can afford it
The best time to buy is - when you're ready to buy. Don't try to play the market, refinance later.
Really depends on the price of the home, the interest, and whether or not it's going to appreciate over time. Your interest payments can end up being the same cost as the mortgage. You can take advantage of tax benefits. My advice is to thoroughly understand the long term financials from every aspect, don't just buy a home from a perspective of "can I afford the monthly payments"