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

[fowler623]

@anonymous88 Rent does not necessarily increase in an unpredictable way. I live in an area with very strong rent control protections. I also cannot be evicted on a whim.

I have chosen renting for many lifestyle reasons, and have invested the money I've saved on property insurance, repairs and taxes quite well. I like being able to move at the drop of a hat and may well retire overseas.

Home ownership is as much a lifestyle choice as it is a financial choice. It works well for people who want to settle in an area, have children who go to the same schools, and leverage borrowed money. It isn't for everyone.

 

[vikingqueen]

@anonymous88 Wish this were true. Nothing is fixed for 30 years. Our mortgage has changed several times because of "escrow analysis," increasing taxes (fought and appealed for 3 years now), and rising insurance premiums (yes, shopped around for best deal). Throw in inflation and one should really do their own analysis. Sometimes rent and mortgage payments end up being similar.

 

[tm8211]

@vikingqueen The person above said the mortgage is set, not every conceivable cost of homeownership. While you send money to your mortgage servicer to cover your insurance and taxes, those things aren’t a part of mortgage.

 

[albin]

@missmyluv I'm in the "it depends" crowd. For me owning a home was the better choice. I was in an area I knew I'd be working/living for a long time, possibly until retirement. Found a home in a rural area on a USDA loan @ 3.25% with 0% down. My mortgage was about $150/month more than an apartment 9 years ago. Today my mortgage is slightly cheaper than the same apartment plus I have a good amount of equity in the house per the original loan. I bought the house in 2012 so it's nearly doubled in price which means I may be able to extract quite a bit more out of the home were I to sell it today.

I like apartments because they allow me to move to an area without a heavy commitment. But had I been renting these past 9+ years I'd have saved $16,200 over a mortgage though I wouldn't have $100k+ in equity built up.

 

[fowler623]

@albin

But had I been renting these past 9+ years I'd have saved $16,200 over a mortgage though I wouldn't have $100k+ in equity built up.

The right comparison would be to assume you had invested the 16k in the market and compare that amount to the equity.

Not everyone invests the difference that they save between renting and owning, but some of us do.

 

[albin]

@fowler623 Sure, I was just giving off-the-cuff numbers but you make a good point, so these are better numbers. Investing $150/month with a 7% return would have resulted in $22K over 9 years. A 20% return would have resulted in $44K. A 46% return would have resulted in $223K.

I've paid about $31K into my 30 year loan so far and I've improved the house some with new floors, roof, HVAC, water heater, washer dryer, and some other odds and ends. Basically, I've probably spent about $25K so I'm +$6K net. If we stop here we could conclude that I'd be +$16K having rented this entire time.

Now, looking up my house it's value has actually increased about $216K since I bought it. If I were to sell today I probably wouldn't get exactly that (though my market is booming.) So let's say $200K.

So, if I sold today I'd be +$206K over renting. Those are more realistic numbers. If I dug deep I could probably deduce I've spent a bit more on the house than my numbers indicate (blinds, curtains, wiring, materials for workbenches in the garage, etc) but this is realistic enough to illustrate my point.

 

[hangis]

@missmyluv The only correct answer to this question is "it depends". There are several rent vs buy calculators that people have linked to which will help you figure it out.

I will say though that for the length of time you mention (30-40 years), it is always going to be better to buy because all the factors work in its favor (fixed mortgage which will be paid off by then, stability to raise a family, no risk of eviction, freedom to do renovations, and lots more).

 

[darlinerin]

@missmyluv Also consider that a lot of your capital gains are excluded from home ownership.

 

[davetl]

@missmyluv Check out Biggerpockets podcast or YouTube. I’m all in with real estate it’s a definite game changer to life.

 

[chaoticbeliever]

@missmyluv There is no "excess". Renting a home typically costs significantly more than a mortgage. That's why the "invest the rest" theory is a total fallacy. Renting vs buying is nuts if a lifestyle decision than a financial one.

 

[spqrsteve]

@missmyluv Rent is typically set to include the landlord's mortgage payment, property taxes, HOA dues, insurance, maintenance, profit, etc. You're already paying for all of those things that you attribute to home ownership. Are you comparing similar properties between buying and renting?

 

[bena7]

@missmyluv We bought a home that is twice the size of the one we rented (in the same neighborhood) for about $300 less than the rental. In my area it’s much cheaper to buy than to rent.

ETA: my mortgage, which includes PITI, is $300 less than my rent was.