What’s a better long term strategy? A) Owning a home or B) Renting and investing the excess

[missmyluv]

I’m a 23F trying to figure out the best long term strategy for home ownership vs. renting.

I’m in a position where I could purchase a home in the next 3-5 years, but also know that with ownership comes property taxes, HOA dues, insurance, maintenance, etc…

I’m wondering if over the long term (30-40 year horizon), it is a better financial decision to instead RENT and invest the excess expenses that would have resulted from owning a home.

I tried to do some calculations online, but can’t find a straight answer.

Appreciate the help and guidance!

 

[keith_c]

@missmyluv There are a lot of factors that go into it. I like this calculator for buy v. rent and it provides a good explanation of the different considerations / costs that would potentially impact your calc (taxes, hoa, down payment amt, insurance, house maintenance, closing costs, how long you own the home, etc.)

https://www.calculator.net/rent-vs-buy-calculator.html?

 

[agent23]

@missmyluv Probably best to identify where you plan to live first. Some places have tax shelters for home ownership, some places have supply shortages or surpluses, some places have rental laws which are favourable, etc

 

[missmyluv]

@agent23 Living in Boise, Idaho. With no plans of moving in the future

 

[vhialemon]

@missmyluv If you plan to stay for that long then usually buying works out to be the better decision, but not always. Use the NYT calculator that got linked in another comment to get a better idea of what factors play into the decision.

 

[agent23]

@missmyluv Probably best to ask someone in your city. The math would be TCO over a long term horizon and factoring in historical data like:
Projected growth (use historical assuming supply/demand hasn’t greatly changes)
Projected costs of ownership.
Cost of rent.
Normally you would own it appreciation is likely, interest rates are low and rent is high or likely to increase.
You would rent if, appreciation is unlikely, interest rates are high, rent is low and is controlled.

 

[bena7]

@missmyluv I lived in Boise in the early twenty-teens. We rented in the North End because we couldn’t afford to buy. I’ve been watching the Boise housing market from afar. If we were still there, we’d still be renting. Because even almost a decade later, we still couldn’t afford a house in the North End. If you can buy in a desirable part of town, you stand to make some good money.

 

[rejected]

@missmyluv https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

This takes investment returns into account - just fill out all the info for your area and it’ll give you a good idea of what makes sense.

 

[steadfastlutheran]

@missmyluv Nobody knows for sure. Nobody can possibly know.

You should make this decision based on whether you want to have full control and responsibility for maintenance and upgrades of your home, or rather have a landlord take care of things.

 

[catholicatheist]

@missmyluv As a renter, I've been able to move around a lot in search of the best employment and have had a whole variety of experiences that people bound to a house/geo could not have reasonably had.

I bought a home at the age of 29 thinking that would probably be the last place I ever lived. Within 5 years, I sold the house and relocated across the country for a job that paid me almost 3x as much and opened doors in my career. Net, things will probably change for you over time.

As I peek ahead at retirement, what I now want is to plant some roots and buy a house/land or a multi-apartment complex with a mind toward diversifying my cash flow into hard rental income (i.e. not a dividend from a REIT). Not seeking a real estate empire, just leveraging the property where I live in some way to bring in a different income stream.

So, my $0.02? Run wild, run free, while you can. When you are encumbered with a family, a job you want to stay at long-term, a sickly parent, or some other effective anchor into the Earth, then you can leg into owning and it will then be meaningful to you in a way that a purely financial decision, made when you were 23, may not be.

 

[resjudicata]

@missmyluv I'm someone who rents and invests the excess, and I feel like it's working out well for me and I'm on track to meet my goals. However, I'm also someone who will never have kids, doesn't need much space, has a habit of moving around, and would rather not have to deal with maintaining a house.

 

[fowler623]

@resjudicata Same here. I am approaching retirement and I am really happy with my investment position, and I'm glad not to have a house to maintain. I might couch surf with various friends or move overseas for at least the beginning of my retirement.

I honestly don't see the benefit of owning a house unless you have kids and you want to settle in your school district.

I have been in my rental for a long time, because I am in a HCOL area with strong rent control. My rent has not gone up much at all compared to the market rate of a new rental.

 

[resjudicata]

@fowler623 I have a friend who is pretty handy and loves working on his house and learning how to do new stuff to it, it's pretty much his hobby. He has a small but somewhat functional ninja warrior gym in there now. It would be cool to do something like that, I can't even paint the walls an unapproved color without pissing off a landlord (I do it anyway), but I know I'd be lazy about maintaining a house since I work and travel a lot and would just let things fall apart or pay someone else to do it.

 

[fowler623]

@resjudicata I do small projects around my apartment and I do paint my walls. My lease says I have to paint them back white if the landlord asks me to when I move out. No big deal there.

There is a YouTube channel called Engineer Your Space that talks about home improvement you can do to an apartment that is non-destructive. I highly recommend it.

 

[simon129]

@missmyluv I’m on the buy a house side. I put down $10,000 for my house and refinanced once after 3.5 years. In the beginning I rented out a bedroom to offset costs. I just googled what a rental is near me. I found a same square footage house within walking distance of my home renting for $640 a month more then my mortgage.

My insurance and property taxes are wrapped into the mortgage. My HOA is under $200 a year. And I am coming up on my first big home need, which is a fence.

If I ever got into a situation where I lost income I could go back to renting bedrooms out to make money, which isn’t always an option with rentals.

 

[anonymous88]

@missmyluv Home ownership. A mortgage is set for 30 years. Rent is unpredictably increasing.

 

[missmyluv]

@anonymous88 But what about the value you could generate in compounding interest? I’m trying to factor that in as well.

 

[ruc]

@missmyluv Keep in mind that you are leveraging your money when you buy a house. If you put down $50k on a $250k house, and the house appreciates 10% - you got a 50% gain on your down payment.

But if your house depreciates, you lose more.

 

[kaleb5000]

@missmyluv Don’t get something outrageous at first. You may be able to buy something for what you expect to pay in rent. Also, if you don’t have a family yet you can get a roommate to help pay your mortgage. Finally, property is a great inflation hedge.

 

[2die]

@missmyluv At some point you would no longer have “excess” as compared to a mortgage b/c rents just keep going up whereas a mortgage payment is fixed for the term of the loan. Also when you make a mortgage payment you are investing that entire payment interest b/c you gain equity in your home and the value of the home increases, so you get compound interest there. Stocks generally appreciate at a greater rate than real estate which is why it is also important to invest outside your home equity.