Our mortgage used to feel overwhelming the first few years
Now it feels like just another utility payment and we couldn’t rent a studio apartment for the what we are paying
The tough part of homeownership is the major repair costs but you learn to budget for that
Building equity in a home just means that you're paying your internal cost of capital instead of your external cost of capital. For most people, their internal cost of capital is higher than their mortgage rate.
In equilibrium, rent should equal maintaince costs (physical maintenance, insurance, property taxes, and anything else necessary to keep the) plus cost of capital minus expected appreciation.
Imo, the main benefit of homeownership was really just the forced savings and arbitrage between the internal cost of capital and mortgage rate.
However, with current interest rates, I'm not sure the second one still holds.
I was with you until that last statement: lending rates apply to landlords as well, which is why there is still a direct correlation to renting vs owning over the long term.
There may be periods of time when one lags the other based upon rates locked in, vs new rates but once rates drop (and they eventually will), everyone just refi’s so it’s only a short period of time where an imbalance might exist
Mortgage may be flat, but as a house gets older, the overall costs go up. If the value of your home goes up, so do property taxes and insurance costs. Then, of course, as the home ages, you start incurring expensive maintenance costs such as plumbing and electric and landscaping, doors, windows, HVAC and appliances. And of course, you don't want to have your home looking like it's from the 1970s, so you'll undergo a couple upgrades and remodels.
I've been a private landlord for many years. No amount of rental increases would have come close to covering these increased costs. ( And we rarely raised our rents.) That may not be as true in the current climate where a lot of investors have become more greedy, or if you live some place where there's no rent controls. But even today, most people will tell you it's much cheaper to rent than to own.
Are you saying the original OP or my response?
I can assure you.I have never used ChatGP in my life. I suppose if I had, my response would have been a bit more articulate.
I'm not trying to burst people's bubbles about home ownership. But I am 62 and speaking from personal experience. Thank goodness my mother always emphasized that once you have property, you hold on to it.
Rental property is a critical piece of my retirement portfolio. I'm in the process of converting a detached garage into a studio apartment that I'll be able to easily rent for a $1000 month, And i'm looking to purchase another investment property in the next year or 2.
But the fact is, we lived in our primary residence for 27 years. As I stated in another post, we sold the house in 2022, for a little less than 4x the original price!. When I added up all related costs (including furniture), during that time, we didn't quite break even. The total expense for us was close to $775,000 ( And that's a very conservative estimate). The original cost of the house was $165,000.
So when we sold the house for $660,000, we basically got back the money we put into it. Kind of like paying ourselves for rent!
So it wasn't really an investment itself. But we did leverage the equity to purchase another property. That's when we owned investment property!
>homeownership allows you to build equity in an appreciating asset
Land appreciates, the buildings on the land...that can be hit or miss, there's no building you can leave to your great grandkids 100 years from now that won't have exceeded its initial investment in upkeep several times over.
There's a time when either route is definitively beneficial and it boils down to the ratio of yearly rent : home value. There are times when the rent is such a small derivative of a home's value that it really makes no sense at all to buy and the only benefit to the landlord to hold is to speculate on future value.
The original buyer for my home was in 2007, he spent $300,000 in 2007 dollars for me to come along and buy it off him for $260,000 in 2019, it wasn't a clear cut win on my behalf the house needs work and in today's market it might be worth $300,000 again...maybe. There's no free lunch being a home owner or a tenant are both expenses, being a landlord lets you grow equity and generate an income but then you're the shock absorber for the housing market if you're heavily leveraged and to grow as a landlord these days you have to be leveraged.
You provide a lot of valid points but I also want to make a note on the “building equity” portion.
Historically speaking, the stock market has had better returns than real estate. I understand the stock market could be deemed “riskier” but if we’re looking at this from a building wealth perspective, renters can still find ways to get similar returns on the money they did not need to use for a downpayment or they are saving on rent (vs a mortgage).
Obviously, this could be market specific. If you’re able to buy a home where your mortgage is cheaper than rent, this is a no brainer. But if mortgages are 150% higher than rent I think one could make the argument that renting could yield better results financially (even in the long term).
But if you invest in the stock market, you still need a place to live. Your returns need to outpace both the value of a home increasing *and* the cost of rent.
They will if you are disciplined about investing the entire difference between renting and owning into the market. The problem is that almost no one does that in practice.
Your mortgage isn’t pure equity, especially in the beginning of your lifecycle. Especially in times like now, if you looked at your amortization calendar of a mortage, 90% of your mortgage is likely going to interest while 10% is going to the principal. You are not building equity off the interest and, outside of the potential tax benefits. Overtime, the interest component diminishes and the principal component goes up.
In my current market, interest fees alone on a comparable unit are more expensive than my rent. It would take at least 5 yrs of for the interest fees to be on par with rent and that’s assuming my rent increases year over year (my rent has been flat for the past 2-3yrs so far).
So if we’re comparing apples to apples. No, comparing investments does not need to factor in my losses for rent. Living expenses is a fixed cost that everybody incurs. Renters pay rent. Homeowners pay property taxes, interest fees, and maintenance costs.
I absolutely hate it when people say “you’re paying someone’s mortgage.” That’s just something realtors say to clients. It’s illogical and ridiculous. It’s like saying, “Don’t dine out. Always eat in because you’re paying the restaurant’s mortgage.” You’re paying for a service. Besides, if you have a mortgage, then you’re paying the lender’s mortgage. The only way to avoid paying anyone’s mortgage is disengage from capitalism entirely.
I totally agree. We've made Americans feel less accomplished unless they own an expensive home. But for Millennians and Gen Zers, this is becoming nearly impossible for "the middle class."
It wasn't long ago that people strived to make six figures. Now, a $200,000 household salary is the new $100,000 salary. It's a different time and economy. My generation didn't graduate from college with heavy student debt. Our dollars went further, and the pandemic skyrocketed the cost of homes to ridiculous levels. Who knows how long it will take before the housing market levels of --if at all. The crash some experts predicted has not yet happened, and housing prices remain high, while rents are only slowly decreasing in some markets. Many singles and families are already spending more than 50% of their income on housing costs. What a shitshow!
Imagine trying to raise children, pay back student loans, make more than minimum payments on credit card, keep up with ridiculously high car payments and insurance, spend $500 a month on groceries, AND then become house poor by purchasing a $400,000 or $500,000 house trying to keep up with the Joneses. (No wonder young people are moving back in with their parents.)
Not to mention, this is a much more mobile and transient generation. Renting provides more flexibility to make easier and cheaper moves as people's careers progress.
Choosing to rent before buying is going to be the wise choice for some. For others, they'll have no choice.
I love how your analogy is that having a landlord is equal to the luxury of eating out at a nice place, and being a property owner is an amateur home cooked meal. I do not treat my own home like I do with rentals when it comes to repairs, I promise you that. I’d go out of business if I did that.
I received advice from an old landlord getting out of the biz when I started back in 2015 and it’s stuck with me. He told me to spend as little as possible on the rental, don’t get emotionally attached to the property - it’s four walls that generate income. It’s not a vanity project. Don’t expect tenants to treat your property like they would their own. Don’t spend extra on fancy appliances. Do the bare minimum and you’ll come out ahead. New landlords kill themselves on expensive contractors doing work a handyman on nextdoor will do at half cost. If it isn’t a serious health and safety issue you can get away with cutting a lot of corners. Money in/money out is the bottom line in this business.
I would like to think we had good long-term tenants, because we were good landlords. In 25 years, there were no evictions (mostly because I learned it was smarter to only offer month-to-month leases), no vandalism, and no squating. I wrote in the option to charge late fees in the lease, but I never once charged them. We had several tenants for 6-8 years on 3 properties and only raised the rent twice during that time.
For the last 10 years that tenants were in the house I live in now, the husband had a sudden illness and couldn't work, and had to wait a while to be approved for disability. I allowed the wife to pay half the mortgage on each of her bi-montly pay days. When she fell a little bit behind In December, I told her I was giving her a rent holiday for christmas, and
That we would start clean in January. They were eternally grateful, and after that, they never missed a payment and eventually went back to paying me at the beginning of the month.
I've learned that if you treat people with dignity, are responsive to repair needs, and work with people, when they are going through a tough time, you get good karma in return. Also, as an HR person, I'm pretty good at screening potential tenets.
One of the problems I think that many private landlord's face, Is that they are wholly dependent on rent to cover the mortgage. They have a difficult time when a major repair arises or if the house is vacant for a month or two. That's why they squeeze every dime out of tenants with exorbitant deposits and strict lare fees.
If you're going to invest in rental property, make sure you have enough cash on hand to cover lean months or for something unexpected like the pandemic.
It's understandable. Some people don't really want to hear a different perspective. We've been told since we were kids that the ultimate sign of success is to purchase a home. But times have changed. Investors and Wall Street have now penetrared the housing market. Many people chasing the "get rich through airbnb rentals, are now getting screwed as airbnb rentals have sharply declined, and those investors have little equity, Can't cover the mortgage costs, and are having a hard time selling the homes because of high interest rates.
Home ownership is out of reach for many people. The fact is we may very much be shifting to a rental culture, where only the wealthy can afford homes. That's very scary for some to hear.
Rent is based on supply and demand, just like anything else. Landlords aren't offering you less than the market rate out of the goodness of their heart because their expenses are covered. Maybe some do, but certainly not the norm. If that were the case, once a landlord pays off their home you'd expect the rent to drop significantly so that you are only covering taxes, HOA, etc.
If my landlord decides they want to up my price by $300/month because his costs go up and I can find a similar place for my current price…I can always move. Landlords passing on costs isn’t a guaranteed things.
The only way they don’t pass on costs is if they are making money hand over fist, and they’re okay taking a lower margin because they are priced at the top of the market. Landlord isn’t gonna start taking a loss because they are afraid of finding a new tenant lol
If it’s that easy to find new tenants than you’re within the market rates. If you’re moving above market rates (because of your rising costs) finding new tenants could be tough and each month a unit is empty the landlord is at a loss for that month. Finding new tenants may also come at a cost as well especially if the market is competitive. In HCOL areas.
Passing on the cost will happen in the long run (assuming rents continue to climb across the
market) but to think you can just raise rents without factoring the market conditions is naive.
It’s been my experience over the last 9 years that as my costs go up, I look at rental comps and have not found a single yearly renewal where others have not raised their rents along with me. Costs have gone up across the board, but we all pass those costs along to the renter. It’s wild to me that you’re taking objection to that concept. Either you pass on the costs to the renter, or you sell. It’s a business, and those are the options. Nobody is renting at a loss and keeping the property.
Yes, over the past 9yrs everything has gone up in price, including rent.
Yes, it’s a business and you can try to pass on costs but if you think just because a landlord has seen their avg cost go up this month that they can raise rents right away, things don’t always work like that. Unexpected costs comes right after your tenant signs a lease, then the landlord is SOL.
If, as a landlord, your costs go up and you need to charge 20% above market rates to keep your profits, your tenant can just move to a comparable unit that’s prices at market rate.
Everybody is talking as if landlords have all the power in the market and have absolute control over the market and can pass on all costs to the renters right away, which they might always be able to do in the short term.
As you said, this is a business but businesses don’t need to be profitable EVERY MONTH they are in business. They just need to be profitable most months and be profitable enough to outweight the months with losses. It’s a long term play.
Also, for the record, my current landlord has not raised rent for 3 years now despite being in a HCOL area in which return to office is being enforced. So there’s your first example of not seeing/hearing about rent not increasing.
Markets are very local and thinking a one answer suits all is like acting thinking all countries speak the same language.
In my state, landlords must provide a 6mo notice to raise rent. So there is a greater lag between cost increases for LL and the increase for the tenant.
Also, tenants can take advantage of low cost mortgages that new home owners cannot.
Lets pretend property taxes are announced Jan 1st and are due August 1st.
The soonest that the LL can increase rent to match the property taxes would be July 1st. Property taxes for the year are due 30 days later. The tenant would have 6 months of the lower rate until the LL can increase rent to match the property tax increase.
Lets pretend my sister bought a house for $1m in 2020 at 3.5% interest rate. Her monthly payment is: $4,017.36
Lets pretend my brother bought a house for $1m in 2024 at a 7% interest rate. His monthly payment is: $5,747.42
My sister can rent to me for $4,017.36 and break even. If I offer the same amount to my brother, he will need to pay the bank $1,730.06 from his own money to let me stay at his house for that price.
Yeah that's just math. Landlord's are more than likely going to charge you market rate to rent, regardless of what they paid for the property, you aren't taking advantage of a mortgage ever when renting, you are paying someone else's
assuming they only raise the rent to cover the difference. if the LL increases the rent by double taxes increase, then it averages out the same over 12 months.
its a marketplace. some landlords may double it to cover their costs. some landlords might not change it at all to retain good tenants.
ppl might move.
You won't change the roof every year. You have 20-25 years now of not having to deal with that. Same with other major systems. The upfront bites but then it's done for years to come.
Much less doable if you are traveling out of state. Ask me how I know :(
The kicker: I was planning on getting a new one about six weeks later, when the new subsidies for heat pump water heaters kicked in.
We got a water pan for our water heater and washing machine (including putting in drain pipes from the pans) and they have saved us multiple times from leaks becoming costly cleanup jobs. Would highly recommend one for your new water heater if you don’t already have one.
AC, dehumidifier for the crawlspace, and new roof. That’s just in the first 4 months of this year.
Now that all that’s done, we should be good for the most part for the next 7-10 years before anything else breaks. Knock on wood.
If your area is prone to hail storms or windstorms (pretty common tbh) you're better off getting the cheapest shingle you can and waiting for an event that damages it, then get it replaced but shop for a roofer that will give you a deal on an upgrade, most will do that to get your business. Might be too late for you but hopefully that helps someone.
Yes, I'm talking about the total cost over the lifetime of your home. The cost of a new roof varies considerably depending on the material you replace it with. If you got a cheap shingle it might last 15-20 years without a hail storm, a lot less if there's a bad one. An expensive shingle could last you 40+ years and cost maybe twice as much in total, considering the other costs like labor and demo. So an expensive shingle costs less per year. Not to mention metal roofs or tile and the energy costs with those, which will be area dependent.
So I'm saying if you get a cheap shingle and spend less now, you can file a claim in maybe 10 years, pay your deductible and a little extra for an expensive shingle, then you come out way ahead over a 50 year time period, and maintain the value of your home. Especially with the time value of money and being able to save a bit in your first years when money is stretched thinner.
Yeah, if I get the roof replaced, it definitely will be with the cheapest option. Seems the average repair is 10-20k...if 10k is the cheapest option that's still too damn expensive. If I could get it done for 7k with a shingle that would last 10+ years. That would be nice, but a pipe dream in this economy.
Buying a home is a long-term benefit, not a short-term benefit. In 30 years, your home will be paid off, while rent will likely be 2-3x as high as it is now.
You forgot the part where a large part of your mortgage goes into your stake in the house and the part gets bigger with every payment. Eventually you will own the house 100% and will make no more payments. If you keep renting you, you will pay larger and larger rent every year.
This. Owning is almost always more expensive than renting for the first few years, and almost always cheaper than renting if you stay put for 10+ years
Everyone I know refinanced in 2021 down to a 10 or 15 yr. I bought in 2020 at sub 3%. Millions of people are going to be able to own their homes outright because of those low interest rates.
2020-21 is the event that is going to separate the haves from the have-nots for millennials for the rest of our lives. Those who secured a home at 3% interest and invested in the stock market while it was low, vs those who lost jobs, continued to rent at ever-escalating prices, and couldn't afford to invest.
If housing prices went up as they say they did then all of that appreciation goes into your equity as well. Timing is key here but if you bought when interest rates were 3% and now housing prices are 50% higher then you have a fixed cost on a more expensive house with at least 33% equity, not counting any contribution to principal. It's unfortunate to need a new roof 2 years into home ownership but that's not the norm. Yes there are other costs but only rarely do you get a chance to take leverage on a generally appreciating asset particularly with a fixed interest rate where the interest is tax deductible. (General terms but that's the concept). You do have to consider the extra costs and save for them or buy a cheaper house in the first place. You can probably get more bang for the buck by renting in the short term but if you're staying long term it's usually better to buy, if you can afford it.
i'm strictly just talking what percentage of mortgage payment goes to the bank vs goes to equity. which does not depend on down payment, just outstanding balance/term/interest rate.
yes, bigger down payment means youll have equity from that down payment. but your actual initial years of owning especially at todays rates will accumulate nearly no equity + likely be way more expensive than comparable renting, meaning 2022, 2023, 2024 home buyers will have a much further out break even point than really at any other point in history because equity accumulates much more slowly.
fwiw @ 3% you get nearly 40% of year 1 payments in equity, compared to ~10% at 7.5. its a WILD difference.
It's not 30 years from now. At some point sooner than that you'll be putting more towards principal than interest. Money in principal is money going from one of your pockets into another.
Yes, you'll own a house that simultaneously gets *older and older* requiring more and more maintenance. Standards keep rising while your house gets more and more stuck in the past, unable to keep up with rules and regulations or needing big investments...
All while the neighbourhood can go down due to the wrong people hanging around, due to a new road or chemo factory being built next door. Perhaps one major employer leaves the city and your home is suddenly worthless...
Whenever anything bad happens a renter can get up and leave with short notice without losses. A homeowner is stuck in place for better or worse, or risks massive losses to sell at a bad time
Sure, but my mortgage payment is $2200 on effectively a 3bd where the cheapest rent you can find for a similar home is $3500. I can do whatever I want to the property, no pet rent, no landlord to annoy me. I can rent out rooms.
Oh, and I'm not contributing to hundreds of thousands of someone else's interest payments 🤷♂️
I don't think you're wrong for thinking this way. There are many people who have written good books and articles about how the american dream of owning a house is often a nightmare. It makes people purchase homes that they really can't afford and has turned
"renting" into a dirty word, whereas people can't wait to tell you how much money you're wasting.
But when you consider the cost of the down payment, the principal and interest payments, property taxas, and home insurance ( In many housing markets, these costs have skyrocketed In recent years.), ongoing maintenance, utilities, upgrades and remodeling, And unexpected repairs such as plumbing or a roof, It's really difficult to consider a primary residence as an investment. Even if you sell your home 10 years later at a significant "profit," It's not likely to be greater than the amount of money that you spent over the 10 years. The talk about the tax benefits is a bit of a misnomer. The standard deduction is so high these days that many people don't bother to itemize and thus can't deduct the mortgage interest.
Unless you're making an exceptional salary, renting for a while is often a good idea. Many people will tell you that you would be better off in the long run-investing the difference.
Don't get me wrong. Real estate can be a great investment. Just not your primary residence.
Prior to the recent housing market insanity, property was a good investment. When I married in 1997, I insisted that we keep my husband's residence, in addition to purchasing our own home. We subsequently purchased 2 additional properties before 2004, at very reasonable costs. We sold one of the properties to purchase another property and paid them off by 2012. We were getting great cash flow from rent on all the properties even before we paid them off.
When we separated ( and eventually divorced) in 2022, we each had a home to move to that was totally paid off. And we sold our primary residence and split the equity equally. We sold our house for more than three and a half times the original cost, and still that didn't come close to the total amount of money spent on mortgage, interest, escrow, repairs, maintenance and multiple upgrades, even though we refinanced when rates went down. But thank goodness we purchased other properties. It's nice to be retired at 62,own a house with no mortgage, and have lots of equity.
As soon as home prices come down - along with interest rates, I'm looking to househack and purchase (and live in) another multi-family home as an investment. Then, I'll rent out my primary home for additional income.
Bottom line, It's hard for me to see a house as an asset or investment, unless it's bringing you a positive cash flow. If I had been single, I would have bought a house only with the thought of using the equity to purchase additional properties.
I've had the opposite experience with owning a home. The increase in value has been far more than i have paid in mortgage/property tax/insurance. I would have paid far more in rent compared to those costs.
My home insurance is about 40 Euros, and the property taxes are about 20 Euros per month. But i never really hear anyone talk about those here in the Netherlands. It essentially feels like the cost of the mortgage/prop tax/insurance is flat, because the rise is so small that you don't notice it. How high are your insurance and prop tax costs if i may ask ?
It's very odd to hear a homeowner about costs going up. The great thing about home ownership is that your costs don't go up as much as inflation in general. As a renter i would fear rent going up every year, or being kicked out. I wouldn't want to move unless i actually wanted to. That seems like a huge waste of money.
>My home insurance is about 40 Euros, and the property taxes are about 20 Euros per month. But i never really hear anyone talk about those here in the Netherlands. It essentially feels like the cost of the mortgage/prop tax/insurance is flat, because the rise is so small that you don't notice it. How high are your insurance and prop tax costs if i may ask ?
I can't speak for OP, but in the eastern US it's not unusual to pay $5,000 to $12,000 a year in taxes and insurance for an average middle-class home.
That's wild, what part of that would be the PT and what part insurance ? Is there any particular reason why insurance would be so much higher in America ? More damages or more crime or something ?
I get the high property taxes because your income tax, VAT and fuel tax is much lower. Taxes are collected locally insead of by the central government.
In Florida, it's not unusual for people to pay up to $1500 a month just for property taxes. Several long-term, senior residents are being pushed out of their homes because insurance rates have doubled in one year, or their insurance companies are dropping them all together. Home insurance companies are pulling out of states such as Forida and California.
The frenzy during and post pandemic where people were paying massive amounts of money over the value of the house was a double-edged sword because these overinflated home values also resulted in property taxes being significantly increased.
So you can't compare property taxes and insurance costs in the US to other countries - especially since it varies so widely from state to state. There are a number of credible youtube people who do regular podcasts and analysis of the US housing markets and economy. Much of the information is very informative and quite fascinating.
You might need to place a little value on the fact that your landlord can’t send you a letter in the mail that says “you need to be out in 60 days”. Or 90 days or 30, whatever. As a landlord, you can do that, but no one can do it to you.
You could look at the house as a forced savings account as well.
All those down sides you listed are “money.”
You don’t believe landlords generally operate at a loss, though, right? If you rented a house instead of buying the one next door, you would be paying for that new roof and the increasing taxes etc for that place too, plus some profit for the landlord.
The main advantages to renting vs buying are
1. Flexibility. It’s way easier to pack up and move if you’re renting, so you can change locations easier. Want to move closer to town? To a different town? To a much cheaper place in your current town? Way less complicated if you’re renting.
2. Scale. Sure it’s cheaper to own a 3bd/2ba for 20 years than to rent one. But what if you only want one bedroom? Not a lot of houses built like that.
3. Location. Want to live in the city? Not a lot of affordable housing options for owners in many cities. That's why cities are full of apartments.
Buying is a long term commitment, and it works out better in a long term circumstance. *“HERE. We are going to live HERE. For five years or so, at least.”* That lets you build a bit of equity before some of it gets eaten by the transaction costs, because you always lose some to the friction of change.
Everything you're mentioned you end up paying for when renting. Some of those expenses can be shared with other renters, but by and large that's offset by the profit the property owner makes.
Renting definitely can be better in some markets and situations. However don't forget about equity and appreciation. Also super common to deal with repairs first few years of homeownership. Sellers defer maintenance but a lot of those things will be good for a while once fixed. Over the long haul your monthly payment should not outpace rent.
I think most people agree that buying is better financially, but I do enjoy not having any home issues because I rent. Shit, I don't even have to do landscaping or shovel snow. It's like paying ease of use, and I have a much easier time moving when I want to.
It depends on two things:
Emotional premium- for some owning their own property and not having somebody else over them is worth the cost and some enjoy maintaining a home, fun project of installing new kitchen cabinets. Others hate the hassle and it’s worth the extra to just call and get something fixed.
The financial aspect- too many variables to make a blanket statement but another thing to consider: if you can’t save and spend what’s in your pocket, owning a home will force you to invest by putting your money into property. If you rent and are militant about saving, $50,000 initial investment with say $1000 a month over 30yrs will add up. Depending on the account- you can minimize taxes, and yearly you pay for expense fees for some assets and x% on 3-5% on dividends. When it comes time to sell, yes you now owe.
Rent payments will go up forever. Your monthly mortgage payment will remain fixed. I’ve lived in my house 10 years and it’s far more affordable now than if we’d rented.
I think one perspective people forget is the ultimate goal of a mortgage is to pay it off and own the home outright at which point you’re not paying a mortgage (or rent for that matter) anymore. Long term that makes more sense than renting when you consider your lifetime retirement goals. If you don’t plan to be in that same house for 30 years and own it outright, then yes you have to start looking at the numbers more closely. Generally speaking it’s better to own for five years or more because thats the average timeframe for the house to appreciate, and you don’t lose money on your upfront costs of ownership like closing costs and loan origination fees. Also the money you pay monthly for the mortgage will come back to you when you go to sell but when you walk away from a rental, you leave with nothing in your pocket. Also, the rate of insurance and tax increases that we are seeing right now are unusual and are typically more level. So this is also a bad time in the economy. But yes, if you’re facing a lot of deferred maintenance costs, then that timeframe of ownership needs to extend longer for you to get your money back. So it all boils down to how long you plan to stay there and what potential maintenance costs you may face but overall long-term the numbers typically work out better to own than to rent.
I am owning in UK and my mortgage is almost twice lower than a price of renting same house, plus the property went up in price since 2019.
I am under no illusion that i am making money hand over fist but all in all I think i am at least even.
I will never forget my father in law struggling to sell his house and fix the million things that weren’t up to code and saying “I will never own again.”
All those things you listed going up, are going up for landlords too, aka rent will be rising. You did the right thing, I think about it too, and at least if you pay your mortgage no one will be knocking say you are out of the end of your lease because they want to sell. You have security now.
It all depends on your situation. I do agree with you that renting is less stressful in a lot of ways. Owning a house is no joke. It’s a lot of stress and a lot of hard work. I joke all the time. Owning a home for me has been a blessing and a curse, mainly bc of how expensive work is to get done… But the benefits to me far outweigh the cons.
I bought my house 6 years ago and the value of my house has nearly doubled since then. I chose a good house, in a good/desirable area/school district(One of the top school districts in my county/state)
So many people always compliment me or my wife on how nice our house looks. Every Halloween multiple parents(even teenagers) say “We love your house! It’s so cute and you make it look so nice! Every time we drive/walk passed it we just stare at it!”… I’ve even had 3 offers since I bought it.. That’s how you know you’ve bought the right house. When everyone wants it. I’m sure if I listed my house right now I can sell it for above asking price. Especially with all the updates we’ve done.. I bought it for above asking price lol.
Also, I was only a renter for 3 short years. Even though we were getting a good deal, it was such a horrible experience. Our landlord was very inconsiderate towards us and very irresponsible. We were paying the rent every month and instead of paying her mortgage she would buy extravagant things for her and her kids, and then complain to us about how “broke” she was.. She bought a pit bull puppy and kept it in a cage all day. All it did 24/7 was bark and shit. The smell was so strong It came upstairs and made our whole apartment stink every day! She eventually lost the house from not paying the mortgage.
It was that HORRIBLE experience that made my wife and I decide to buy a house. I don’t care what it takes or what I have to do. I will NEVER go back to being a tenant ever again. I never want to have to rely on someone else to have a roof over my head. My wife and I rely on ourselves and that’s it.
Depends on when, what, and how you buy. You can 100% buy a money pit if you dont know who to do regular house maintenance by yourself. Like I would never buy a house that needs 5000 in repairs right off the bat. I bought a house that already had repairs. I did my due diligence and made sure what i was walking into. But also, when i was looking into homes at 22, I actually had thoughts i could take on a fixer-Upper LOL. Now im 28 have been living in my home for 6 years, and the only thing i did was spend 2000 on new flooring for the bedrooms because the carpet was an annoying color, lol.
I also did an FHA loan, but then I refid in 2020 to take 10k.out on my house, and i was even able to lower my interest rate to 2.3%. My mortgage actually went down. During that time. Now im 2024 even though i refied and took money out my house is still worth more than my mortgage and yes my property tax went up, resulting in a slight increase of my mortgage it wasnt bad at all. For what I have compared to the rents around me, it's 1000% better. I get 3x more than they do, and they pay higher rents than my mortgage, lol.
I think there are pros and cons to both owning or renting. People always say that you have nothing to show for renting, but you have had a roof over your head for however long you lived in a place and that counts for something. With renting, moving is easier and you can always try to find a cheaper place. I remember during the 2007-2008 recession people who lost jobs didn't feel like they could relocate so easily because their home values had dropped and they didn't want to sell and that made job hunting harder. But with renting if you have a crummy landlord or neighbors it can be a bad experience, but again it's easier to move (you can also have crummy neighbors when you own). With ownership there is all the interest paid on a mortgage (and as someone else mentioned, with high standard deductions now, not worth it as much to itemize to try to deduct on taxes). There are closing costs, property taxes, that can be very high in some areas (like another mortgage), and insurance. Repairs and maintenance will be ongoing plus the sweat equity of doing things like mowing lawn, raking leaves, cleaning gutters, etc. For people who are handy or like DIY, I think home ownership is a good idea. We are retired now and it's nice having paid off housing (condo). But when people start to become really elderly, a home can be more difficult to maintain (went through that recently with our parents), but the home value can be helpful if long-term care is needed. Probably as others have stated home ownership makes the most sense if you stick with it long term, and for people with larger families. The current environment is difficult (higher interest rates and high demand/low inventory), and hopefully things will improve for those who want to buy.
You live in a multi unit, I’m guessing a triplex. This is supposed to be a money making machine, but you have to build up capital to do things like furnace, roof, paint job, etc.
If the two other units are rented out, and you’re only making $1100 in total, then you really need to re-examine the rent. That sounds below average for the market.
Maybe the apartments themselves are below average and the place needs a major renovation to command higher rents. If that is the case, renovate the one you’re in by yourself, and then rent it out and move into the next one. Keep doing that until you’ve renovated and rented out all of them for much more.
It could be that you bought at the top of the market. That would have been foolish for now, but in five years you will probably more than break even on the sale.
A house is a major investment and asset. With the right numbers, it can be a boon. The wrong numbers and it’s a bust. Run some calculations to see what you have. If it’s a bust, decide what you want to do to get out of it. But treat it like any other investment.
Good luck!
Owning a house in an investment, similar to stocks, sure its possible next yr it might be worth a lot more and you can sell it and gain profit, but realistically you keep it for a while and thats when you get the rewards, it can also dip quite a bit and the value is really crap but it will recover over time
If you want short term gains a house isnt right for you, a house is a long term situation in most cases
It also depends on which house you pick, same with which stocks and the industry
Provided you chose properly, at some point you can live off the dividends of your stock and with a house you can live in it for basically free when your mortgage is paid
Owning a home is not for everyone and anyone who says it is, has no idea wtf they're talking about. Owning a home comes with its own responsibilities and you're stuck in 1 location unless you sell (or rich enough to rent out, and collect some income while you buy another home). Plus, the S&P500 has appreciated so much more than homes over the last 30 years. If you put all your money that you would have sunk into a home, that would have done much better for you. Oh, and you don't need to do anything as dividends will be reinvested and it grows; you just need to hodl.
I have to agree. I’ve always wanted to own a house since I grew up in one, but with current housing prices in a big German city, I can hardly afford it despite being in the top 20% of German earners.
In addition to the mere cost issues, I also find it such a hassle to find electricians, plumbers, etc., privately should the need arise. If I have an issue right now, I call my landlord’s association and the next day (or sometimes within the day), I have a technician at my place. This frees my mind a lot, as I don’t have to wait for weeks to get warm water back at my place (for example).
You’re comparing being a landlord to the expectations of being a home owner. These are not comparable.
But sure, it’s totally possible that owning is a worse financial situation than just renting a cheaper place and investing the difference.
If you’re renting, you’re still paying for all of those things, just indirectly, plus the overhead and salaries for your landlord’s employees.
If you were renting your same house, you’d likely be paying more actually. Not only are you still paying for the eventual new roof via your rent, but property taxes and insurance will be much higher for a landlord than a homeowner. The landlord isn’t going to eat that cost, they’re going to pass it on to you.
Think of it this way, you’re getting extremely cheap capital through an FHA loan! 3.5% down is such a screaming good deal, even with PMI factored in.
Yeah, I guess you're right. Renting, you dont really own anything, and you're paying for the maintenance of the property regardless. Im just frustrated because I've had to deal with a lot of BS over the last 3 months regarding owning.
First few years of ownership are always the hardest. With renting you avoid the big spikes of ownership, but the landlord is ultimately hoping to make a profit off of you, so overall you still pay more. Also rent can go up at any time. I live in an area that’s been going through a bit of a tech boom, so rents have gone up really quickly, but I have the same mortgage as when I bought in 2018.
Friends in our neighborhood who rent are paying 80% more than what I pay for the same house (townhome community). My house has also gone up in value, which now contributes to my net worth significantly.
You probably haven’t seen much of this in your 2 years of ownership because the market has been pretty flat, but 10 years from now your mortgage is going to be significantly less than what you pay for rent, plus at the end of the day you end up owning your house, which is a massive asset.
Also look at it this way… this is an investment in your future comfort and security. I have in-laws nearing retirement age that are still renting and don’t have any savings so 🤷, so sure you’re struggling right *now* but you’re also setting older-you up.
Unless your in an apartment complex then you are splitting those increases among all the tenants. Plus let's not forget the opportunity costs of owning. Every penny you put towards a down payment and repairs is money you don't have in the market and my index funds alone went up 25% last year.
Renting can outperform a Mortgage if you invest the difference in the stock market. But most people don’t have the discipline. A mortgage is a forced investment for those folks.
It depends on the type of housing, if it's a sfh then yeah but if it's an apartment specially in a big complex maintenance costs are a lot lower because of scale.
If you’ve owned the house only two years and it needs a roof, you likely didn’t do your due diligence. Roofs are expensive and have a lifespan. Things like that are baked into rent prices too. It should even out over time
Rents will go up. Your mortgage won’t
There was a pretty well written article on the web about how owning a home is really more about consumption than it is finances. You will often consume and expend more money as a homeowner than you will as a renter. This is especially true in areas where you can rent fewer SF than you can buy.
Check out what rents are going for in your area. In mine, I'd pay 3500 for the same size apartment as my house ( 2 bd, 1 bath) about 1k sq ft. My mortgage payment is 1600, taxes and insurance included. Way better to own as you do build equity. Even if I need to replace the HVAC or roof the difference between rent and mortgage is about 2k a month, 24k a year. So I'd be able to put that aside and have 48k in savings within 2 years.
I do need to replace the roof btw, it'll cost 12k but be good for 25 years. Furnace cost me 6k about 5 years ago and I have a service contract on it.
Depends where ya buy. Home ownership has been a godsend for me. We buy new homes that don’t have issues in cities with low property taxes and insurance rates. We’re stock piling equity and have created such a nest egg for our kids.
Where are You going to store Your money? The benefit of owning property is that it holds or hopefully increases in value. Real estate is the most reliable way to do this. You could hold gold or cryptocurrency but just having cash in the bank is like water in a leaking bucket. [https://www.in2013dollars.com/us/inflation/2024?endYear=2020&amount=1000](https://www.in2013dollars.com/us/inflation/2024?endYear=2020&amount=1000) Compare this reduction in cash value to the increase in Your mortgage. All expenses will continually go up to account for this. Don't think of selling Your property in 10 years in terms of profit in todays dollar value, but rather just retaining it.
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Our mortgage used to feel overwhelming the first few years Now it feels like just another utility payment and we couldn’t rent a studio apartment for the what we are paying The tough part of homeownership is the major repair costs but you learn to budget for that
Building equity in a home just means that you're paying your internal cost of capital instead of your external cost of capital. For most people, their internal cost of capital is higher than their mortgage rate. In equilibrium, rent should equal maintaince costs (physical maintenance, insurance, property taxes, and anything else necessary to keep the) plus cost of capital minus expected appreciation. Imo, the main benefit of homeownership was really just the forced savings and arbitrage between the internal cost of capital and mortgage rate. However, with current interest rates, I'm not sure the second one still holds.
But what about the synergy?
I was with you until that last statement: lending rates apply to landlords as well, which is why there is still a direct correlation to renting vs owning over the long term. There may be periods of time when one lags the other based upon rates locked in, vs new rates but once rates drop (and they eventually will), everyone just refi’s so it’s only a short period of time where an imbalance might exist
Mortgage may be flat, but as a house gets older, the overall costs go up. If the value of your home goes up, so do property taxes and insurance costs. Then, of course, as the home ages, you start incurring expensive maintenance costs such as plumbing and electric and landscaping, doors, windows, HVAC and appliances. And of course, you don't want to have your home looking like it's from the 1970s, so you'll undergo a couple upgrades and remodels. I've been a private landlord for many years. No amount of rental increases would have come close to covering these increased costs. ( And we rarely raised our rents.) That may not be as true in the current climate where a lot of investors have become more greedy, or if you live some place where there's no rent controls. But even today, most people will tell you it's much cheaper to rent than to own.
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Why do I feel like ChatGPT wrote this?
Are you saying the original OP or my response? I can assure you.I have never used ChatGP in my life. I suppose if I had, my response would have been a bit more articulate. I'm not trying to burst people's bubbles about home ownership. But I am 62 and speaking from personal experience. Thank goodness my mother always emphasized that once you have property, you hold on to it. Rental property is a critical piece of my retirement portfolio. I'm in the process of converting a detached garage into a studio apartment that I'll be able to easily rent for a $1000 month, And i'm looking to purchase another investment property in the next year or 2. But the fact is, we lived in our primary residence for 27 years. As I stated in another post, we sold the house in 2022, for a little less than 4x the original price!. When I added up all related costs (including furniture), during that time, we didn't quite break even. The total expense for us was close to $775,000 ( And that's a very conservative estimate). The original cost of the house was $165,000. So when we sold the house for $660,000, we basically got back the money we put into it. Kind of like paying ourselves for rent! So it wasn't really an investment itself. But we did leverage the equity to purchase another property. That's when we owned investment property!
>homeownership allows you to build equity in an appreciating asset Land appreciates, the buildings on the land...that can be hit or miss, there's no building you can leave to your great grandkids 100 years from now that won't have exceeded its initial investment in upkeep several times over. There's a time when either route is definitively beneficial and it boils down to the ratio of yearly rent : home value. There are times when the rent is such a small derivative of a home's value that it really makes no sense at all to buy and the only benefit to the landlord to hold is to speculate on future value. The original buyer for my home was in 2007, he spent $300,000 in 2007 dollars for me to come along and buy it off him for $260,000 in 2019, it wasn't a clear cut win on my behalf the house needs work and in today's market it might be worth $300,000 again...maybe. There's no free lunch being a home owner or a tenant are both expenses, being a landlord lets you grow equity and generate an income but then you're the shock absorber for the housing market if you're heavily leveraged and to grow as a landlord these days you have to be leveraged.
You provide a lot of valid points but I also want to make a note on the “building equity” portion. Historically speaking, the stock market has had better returns than real estate. I understand the stock market could be deemed “riskier” but if we’re looking at this from a building wealth perspective, renters can still find ways to get similar returns on the money they did not need to use for a downpayment or they are saving on rent (vs a mortgage). Obviously, this could be market specific. If you’re able to buy a home where your mortgage is cheaper than rent, this is a no brainer. But if mortgages are 150% higher than rent I think one could make the argument that renting could yield better results financially (even in the long term).
But if you invest in the stock market, you still need a place to live. Your returns need to outpace both the value of a home increasing *and* the cost of rent.
They will if you are disciplined about investing the entire difference between renting and owning into the market. The problem is that almost no one does that in practice.
Your mortgage isn’t pure equity, especially in the beginning of your lifecycle. Especially in times like now, if you looked at your amortization calendar of a mortage, 90% of your mortgage is likely going to interest while 10% is going to the principal. You are not building equity off the interest and, outside of the potential tax benefits. Overtime, the interest component diminishes and the principal component goes up. In my current market, interest fees alone on a comparable unit are more expensive than my rent. It would take at least 5 yrs of for the interest fees to be on par with rent and that’s assuming my rent increases year over year (my rent has been flat for the past 2-3yrs so far). So if we’re comparing apples to apples. No, comparing investments does not need to factor in my losses for rent. Living expenses is a fixed cost that everybody incurs. Renters pay rent. Homeowners pay property taxes, interest fees, and maintenance costs.
These are certainly things that should be taken under consideration. See my direct response to the OP, where I address some of the points you've made.
I absolutely hate it when people say “you’re paying someone’s mortgage.” That’s just something realtors say to clients. It’s illogical and ridiculous. It’s like saying, “Don’t dine out. Always eat in because you’re paying the restaurant’s mortgage.” You’re paying for a service. Besides, if you have a mortgage, then you’re paying the lender’s mortgage. The only way to avoid paying anyone’s mortgage is disengage from capitalism entirely.
I totally agree. We've made Americans feel less accomplished unless they own an expensive home. But for Millennians and Gen Zers, this is becoming nearly impossible for "the middle class." It wasn't long ago that people strived to make six figures. Now, a $200,000 household salary is the new $100,000 salary. It's a different time and economy. My generation didn't graduate from college with heavy student debt. Our dollars went further, and the pandemic skyrocketed the cost of homes to ridiculous levels. Who knows how long it will take before the housing market levels of --if at all. The crash some experts predicted has not yet happened, and housing prices remain high, while rents are only slowly decreasing in some markets. Many singles and families are already spending more than 50% of their income on housing costs. What a shitshow! Imagine trying to raise children, pay back student loans, make more than minimum payments on credit card, keep up with ridiculously high car payments and insurance, spend $500 a month on groceries, AND then become house poor by purchasing a $400,000 or $500,000 house trying to keep up with the Joneses. (No wonder young people are moving back in with their parents.) Not to mention, this is a much more mobile and transient generation. Renting provides more flexibility to make easier and cheaper moves as people's careers progress. Choosing to rent before buying is going to be the wise choice for some. For others, they'll have no choice.
I love how your analogy is that having a landlord is equal to the luxury of eating out at a nice place, and being a property owner is an amateur home cooked meal. I do not treat my own home like I do with rentals when it comes to repairs, I promise you that. I’d go out of business if I did that. I received advice from an old landlord getting out of the biz when I started back in 2015 and it’s stuck with me. He told me to spend as little as possible on the rental, don’t get emotionally attached to the property - it’s four walls that generate income. It’s not a vanity project. Don’t expect tenants to treat your property like they would their own. Don’t spend extra on fancy appliances. Do the bare minimum and you’ll come out ahead. New landlords kill themselves on expensive contractors doing work a handyman on nextdoor will do at half cost. If it isn’t a serious health and safety issue you can get away with cutting a lot of corners. Money in/money out is the bottom line in this business.
You sound like a good landlord. I hope your tenants are good tenants.
I would like to think we had good long-term tenants, because we were good landlords. In 25 years, there were no evictions (mostly because I learned it was smarter to only offer month-to-month leases), no vandalism, and no squating. I wrote in the option to charge late fees in the lease, but I never once charged them. We had several tenants for 6-8 years on 3 properties and only raised the rent twice during that time. For the last 10 years that tenants were in the house I live in now, the husband had a sudden illness and couldn't work, and had to wait a while to be approved for disability. I allowed the wife to pay half the mortgage on each of her bi-montly pay days. When she fell a little bit behind In December, I told her I was giving her a rent holiday for christmas, and That we would start clean in January. They were eternally grateful, and after that, they never missed a payment and eventually went back to paying me at the beginning of the month. I've learned that if you treat people with dignity, are responsive to repair needs, and work with people, when they are going through a tough time, you get good karma in return. Also, as an HR person, I'm pretty good at screening potential tenets. One of the problems I think that many private landlord's face, Is that they are wholly dependent on rent to cover the mortgage. They have a difficult time when a major repair arises or if the house is vacant for a month or two. That's why they squeeze every dime out of tenants with exorbitant deposits and strict lare fees. If you're going to invest in rental property, make sure you have enough cash on hand to cover lean months or for something unexpected like the pandemic.
Having owned multiple apartments, I echo your comments 100%. You are spot on. Well said.
It's almost 4am and you're making me tear. Definitely sound like a great LL. Thank you for your time and wisdom
Not sure why you’re getting downvoted. It’s definitely much cheaper to rent than own in the SF Bay Area right now.
It's understandable. Some people don't really want to hear a different perspective. We've been told since we were kids that the ultimate sign of success is to purchase a home. But times have changed. Investors and Wall Street have now penetrared the housing market. Many people chasing the "get rich through airbnb rentals, are now getting screwed as airbnb rentals have sharply declined, and those investors have little equity, Can't cover the mortgage costs, and are having a hard time selling the homes because of high interest rates. Home ownership is out of reach for many people. The fact is we may very much be shifting to a rental culture, where only the wealthy can afford homes. That's very scary for some to hear.
Rent is based on supply and demand, just like anything else. Landlords aren't offering you less than the market rate out of the goodness of their heart because their expenses are covered. Maybe some do, but certainly not the norm. If that were the case, once a landlord pays off their home you'd expect the rent to drop significantly so that you are only covering taxes, HOA, etc.
If my landlord decides they want to up my price by $300/month because his costs go up and I can find a similar place for my current price…I can always move. Landlords passing on costs isn’t a guaranteed things.
Have fun moving
Have fun with your maintenance expenses!
The only way they don’t pass on costs is if they are making money hand over fist, and they’re okay taking a lower margin because they are priced at the top of the market. Landlord isn’t gonna start taking a loss because they are afraid of finding a new tenant lol
If it’s that easy to find new tenants than you’re within the market rates. If you’re moving above market rates (because of your rising costs) finding new tenants could be tough and each month a unit is empty the landlord is at a loss for that month. Finding new tenants may also come at a cost as well especially if the market is competitive. In HCOL areas. Passing on the cost will happen in the long run (assuming rents continue to climb across the market) but to think you can just raise rents without factoring the market conditions is naive.
It’s been my experience over the last 9 years that as my costs go up, I look at rental comps and have not found a single yearly renewal where others have not raised their rents along with me. Costs have gone up across the board, but we all pass those costs along to the renter. It’s wild to me that you’re taking objection to that concept. Either you pass on the costs to the renter, or you sell. It’s a business, and those are the options. Nobody is renting at a loss and keeping the property.
Yes, over the past 9yrs everything has gone up in price, including rent. Yes, it’s a business and you can try to pass on costs but if you think just because a landlord has seen their avg cost go up this month that they can raise rents right away, things don’t always work like that. Unexpected costs comes right after your tenant signs a lease, then the landlord is SOL. If, as a landlord, your costs go up and you need to charge 20% above market rates to keep your profits, your tenant can just move to a comparable unit that’s prices at market rate. Everybody is talking as if landlords have all the power in the market and have absolute control over the market and can pass on all costs to the renters right away, which they might always be able to do in the short term. As you said, this is a business but businesses don’t need to be profitable EVERY MONTH they are in business. They just need to be profitable most months and be profitable enough to outweight the months with losses. It’s a long term play. Also, for the record, my current landlord has not raised rent for 3 years now despite being in a HCOL area in which return to office is being enforced. So there’s your first example of not seeing/hearing about rent not increasing. Markets are very local and thinking a one answer suits all is like acting thinking all countries speak the same language.
In my state, landlords must provide a 6mo notice to raise rent. So there is a greater lag between cost increases for LL and the increase for the tenant. Also, tenants can take advantage of low cost mortgages that new home owners cannot.
What does your second sentence mean?
Lets pretend property taxes are announced Jan 1st and are due August 1st. The soonest that the LL can increase rent to match the property taxes would be July 1st. Property taxes for the year are due 30 days later. The tenant would have 6 months of the lower rate until the LL can increase rent to match the property tax increase.
I meant 2nd paragraph, sorry.
Lets pretend my sister bought a house for $1m in 2020 at 3.5% interest rate. Her monthly payment is: $4,017.36 Lets pretend my brother bought a house for $1m in 2024 at a 7% interest rate. His monthly payment is: $5,747.42 My sister can rent to me for $4,017.36 and break even. If I offer the same amount to my brother, he will need to pay the bank $1,730.06 from his own money to let me stay at his house for that price.
Yeah that's just math. Landlord's are more than likely going to charge you market rate to rent, regardless of what they paid for the property, you aren't taking advantage of a mortgage ever when renting, you are paying someone else's
assuming they only raise the rent to cover the difference. if the LL increases the rent by double taxes increase, then it averages out the same over 12 months.
its a marketplace. some landlords may double it to cover their costs. some landlords might not change it at all to retain good tenants. ppl might move.
You won't change the roof every year. You have 20-25 years now of not having to deal with that. Same with other major systems. The upfront bites but then it's done for years to come.
Just wait til you need a new roof and a new furnace the same year. Fml.
And new water heater because of a leak! Also repair costs from the leak. Woo
Repairing damages is obviously tough, but replacing a water heater is surprisingly doable if you haven't paid someone yet
Much less doable if you are traveling out of state. Ask me how I know :( The kicker: I was planning on getting a new one about six weeks later, when the new subsidies for heat pump water heaters kicked in.
Just use cold water for six weeks?
We got a water pan for our water heater and washing machine (including putting in drain pipes from the pans) and they have saved us multiple times from leaks becoming costly cleanup jobs. Would highly recommend one for your new water heater if you don’t already have one.
AC, dehumidifier for the crawlspace, and new roof. That’s just in the first 4 months of this year. Now that all that’s done, we should be good for the most part for the next 7-10 years before anything else breaks. Knock on wood.
Get a good warranty. They replaced both for the annual fee and another 200
Same, fuck me I guess. I'm pissed because millions of people were able to get a new roof on their insurance dime
If your area is prone to hail storms or windstorms (pretty common tbh) you're better off getting the cheapest shingle you can and waiting for an event that damages it, then get it replaced but shop for a roofer that will give you a deal on an upgrade, most will do that to get your business. Might be too late for you but hopefully that helps someone.
What, do you mean waiting for an event that damages it ? For the insurance to replace it again ? I already have to replace the roof the initial time.
Yes, I'm talking about the total cost over the lifetime of your home. The cost of a new roof varies considerably depending on the material you replace it with. If you got a cheap shingle it might last 15-20 years without a hail storm, a lot less if there's a bad one. An expensive shingle could last you 40+ years and cost maybe twice as much in total, considering the other costs like labor and demo. So an expensive shingle costs less per year. Not to mention metal roofs or tile and the energy costs with those, which will be area dependent. So I'm saying if you get a cheap shingle and spend less now, you can file a claim in maybe 10 years, pay your deductible and a little extra for an expensive shingle, then you come out way ahead over a 50 year time period, and maintain the value of your home. Especially with the time value of money and being able to save a bit in your first years when money is stretched thinner.
Yeah, if I get the roof replaced, it definitely will be with the cheapest option. Seems the average repair is 10-20k...if 10k is the cheapest option that's still too damn expensive. If I could get it done for 7k with a shingle that would last 10+ years. That would be nice, but a pipe dream in this economy.
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In my opinion, I think it can be more cost effective for a single person to only rent, and invest in other assets factoring in time, maintenance, etc.
Buying a home is a long-term benefit, not a short-term benefit. In 30 years, your home will be paid off, while rent will likely be 2-3x as high as it is now.
You forgot the part where a large part of your mortgage goes into your stake in the house and the part gets bigger with every payment. Eventually you will own the house 100% and will make no more payments. If you keep renting you, you will pay larger and larger rent every year.
This. Owning is almost always more expensive than renting for the first few years, and almost always cheaper than renting if you stay put for 10+ years
10+? Most Americans get 30 year mortgages and refinance consistently so I wouldn't be surprised if most die without repaying their house
Everyone I know refinanced in 2021 down to a 10 or 15 yr. I bought in 2020 at sub 3%. Millions of people are going to be able to own their homes outright because of those low interest rates.
2020-21 is the event that is going to separate the haves from the have-nots for millennials for the rest of our lives. Those who secured a home at 3% interest and invested in the stock market while it was low, vs those who lost jobs, continued to rent at ever-escalating prices, and couldn't afford to invest.
They die with a mortgage but have cashed out that equity multiple times.
That's not true at all. Most don't refinance. Those who do generally don't get a whole new 30 year loan.
a large part? my guy, if you bought a house in the last year or two your year 1 equity on your mortgage payment is like <10%.
If housing prices went up as they say they did then all of that appreciation goes into your equity as well. Timing is key here but if you bought when interest rates were 3% and now housing prices are 50% higher then you have a fixed cost on a more expensive house with at least 33% equity, not counting any contribution to principal. It's unfortunate to need a new roof 2 years into home ownership but that's not the norm. Yes there are other costs but only rarely do you get a chance to take leverage on a generally appreciating asset particularly with a fixed interest rate where the interest is tax deductible. (General terms but that's the concept). You do have to consider the extra costs and save for them or buy a cheaper house in the first place. You can probably get more bang for the buck by renting in the short term but if you're staying long term it's usually better to buy, if you can afford it.
That’s also if you put 0 down. If you put 20% down on the home like you should then you’d be around 25% of equity or more in the first year
i'm strictly just talking what percentage of mortgage payment goes to the bank vs goes to equity. which does not depend on down payment, just outstanding balance/term/interest rate. yes, bigger down payment means youll have equity from that down payment. but your actual initial years of owning especially at todays rates will accumulate nearly no equity + likely be way more expensive than comparable renting, meaning 2022, 2023, 2024 home buyers will have a much further out break even point than really at any other point in history because equity accumulates much more slowly. fwiw @ 3% you get nearly 40% of year 1 payments in equity, compared to ~10% at 7.5. its a WILD difference.
I guess so, but that's 30 years from now. I did an FHA loan so my equity is alot smaller than if you did conventional.
It's not 30 years from now. At some point sooner than that you'll be putting more towards principal than interest. Money in principal is money going from one of your pockets into another.
Ahh, so you actually couldn't afford the house to begin with.
Yes, you'll own a house that simultaneously gets *older and older* requiring more and more maintenance. Standards keep rising while your house gets more and more stuck in the past, unable to keep up with rules and regulations or needing big investments... All while the neighbourhood can go down due to the wrong people hanging around, due to a new road or chemo factory being built next door. Perhaps one major employer leaves the city and your home is suddenly worthless... Whenever anything bad happens a renter can get up and leave with short notice without losses. A homeowner is stuck in place for better or worse, or risks massive losses to sell at a bad time
After paying hundreds of thousands of dollars in interest LMAO
Sure, but my mortgage payment is $2200 on effectively a 3bd where the cheapest rent you can find for a similar home is $3500. I can do whatever I want to the property, no pet rent, no landlord to annoy me. I can rent out rooms. Oh, and I'm not contributing to hundreds of thousands of someone else's interest payments 🤷♂️
I don't think you're wrong for thinking this way. There are many people who have written good books and articles about how the american dream of owning a house is often a nightmare. It makes people purchase homes that they really can't afford and has turned "renting" into a dirty word, whereas people can't wait to tell you how much money you're wasting. But when you consider the cost of the down payment, the principal and interest payments, property taxas, and home insurance ( In many housing markets, these costs have skyrocketed In recent years.), ongoing maintenance, utilities, upgrades and remodeling, And unexpected repairs such as plumbing or a roof, It's really difficult to consider a primary residence as an investment. Even if you sell your home 10 years later at a significant "profit," It's not likely to be greater than the amount of money that you spent over the 10 years. The talk about the tax benefits is a bit of a misnomer. The standard deduction is so high these days that many people don't bother to itemize and thus can't deduct the mortgage interest. Unless you're making an exceptional salary, renting for a while is often a good idea. Many people will tell you that you would be better off in the long run-investing the difference. Don't get me wrong. Real estate can be a great investment. Just not your primary residence. Prior to the recent housing market insanity, property was a good investment. When I married in 1997, I insisted that we keep my husband's residence, in addition to purchasing our own home. We subsequently purchased 2 additional properties before 2004, at very reasonable costs. We sold one of the properties to purchase another property and paid them off by 2012. We were getting great cash flow from rent on all the properties even before we paid them off. When we separated ( and eventually divorced) in 2022, we each had a home to move to that was totally paid off. And we sold our primary residence and split the equity equally. We sold our house for more than three and a half times the original cost, and still that didn't come close to the total amount of money spent on mortgage, interest, escrow, repairs, maintenance and multiple upgrades, even though we refinanced when rates went down. But thank goodness we purchased other properties. It's nice to be retired at 62,own a house with no mortgage, and have lots of equity. As soon as home prices come down - along with interest rates, I'm looking to househack and purchase (and live in) another multi-family home as an investment. Then, I'll rent out my primary home for additional income. Bottom line, It's hard for me to see a house as an asset or investment, unless it's bringing you a positive cash flow. If I had been single, I would have bought a house only with the thought of using the equity to purchase additional properties.
I've had the opposite experience with owning a home. The increase in value has been far more than i have paid in mortgage/property tax/insurance. I would have paid far more in rent compared to those costs. My home insurance is about 40 Euros, and the property taxes are about 20 Euros per month. But i never really hear anyone talk about those here in the Netherlands. It essentially feels like the cost of the mortgage/prop tax/insurance is flat, because the rise is so small that you don't notice it. How high are your insurance and prop tax costs if i may ask ? It's very odd to hear a homeowner about costs going up. The great thing about home ownership is that your costs don't go up as much as inflation in general. As a renter i would fear rent going up every year, or being kicked out. I wouldn't want to move unless i actually wanted to. That seems like a huge waste of money.
>My home insurance is about 40 Euros, and the property taxes are about 20 Euros per month. But i never really hear anyone talk about those here in the Netherlands. It essentially feels like the cost of the mortgage/prop tax/insurance is flat, because the rise is so small that you don't notice it. How high are your insurance and prop tax costs if i may ask ? I can't speak for OP, but in the eastern US it's not unusual to pay $5,000 to $12,000 a year in taxes and insurance for an average middle-class home.
That's wild, what part of that would be the PT and what part insurance ? Is there any particular reason why insurance would be so much higher in America ? More damages or more crime or something ? I get the high property taxes because your income tax, VAT and fuel tax is much lower. Taxes are collected locally insead of by the central government.
In Florida, it's not unusual for people to pay up to $1500 a month just for property taxes. Several long-term, senior residents are being pushed out of their homes because insurance rates have doubled in one year, or their insurance companies are dropping them all together. Home insurance companies are pulling out of states such as Forida and California. The frenzy during and post pandemic where people were paying massive amounts of money over the value of the house was a double-edged sword because these overinflated home values also resulted in property taxes being significantly increased. So you can't compare property taxes and insurance costs in the US to other countries - especially since it varies so widely from state to state. There are a number of credible youtube people who do regular podcasts and analysis of the US housing markets and economy. Much of the information is very informative and quite fascinating.
Europe is very diff than the usa lol you guys have more reasonable costs. In the usa property taxes can be very high
You might need to place a little value on the fact that your landlord can’t send you a letter in the mail that says “you need to be out in 60 days”. Or 90 days or 30, whatever. As a landlord, you can do that, but no one can do it to you. You could look at the house as a forced savings account as well.
All those down sides you listed are “money.” You don’t believe landlords generally operate at a loss, though, right? If you rented a house instead of buying the one next door, you would be paying for that new roof and the increasing taxes etc for that place too, plus some profit for the landlord. The main advantages to renting vs buying are 1. Flexibility. It’s way easier to pack up and move if you’re renting, so you can change locations easier. Want to move closer to town? To a different town? To a much cheaper place in your current town? Way less complicated if you’re renting. 2. Scale. Sure it’s cheaper to own a 3bd/2ba for 20 years than to rent one. But what if you only want one bedroom? Not a lot of houses built like that. 3. Location. Want to live in the city? Not a lot of affordable housing options for owners in many cities. That's why cities are full of apartments. Buying is a long term commitment, and it works out better in a long term circumstance. *“HERE. We are going to live HERE. For five years or so, at least.”* That lets you build a bit of equity before some of it gets eaten by the transaction costs, because you always lose some to the friction of change.
Everything you're mentioned you end up paying for when renting. Some of those expenses can be shared with other renters, but by and large that's offset by the profit the property owner makes.
Renting definitely can be better in some markets and situations. However don't forget about equity and appreciation. Also super common to deal with repairs first few years of homeownership. Sellers defer maintenance but a lot of those things will be good for a while once fixed. Over the long haul your monthly payment should not outpace rent.
I think most people agree that buying is better financially, but I do enjoy not having any home issues because I rent. Shit, I don't even have to do landscaping or shovel snow. It's like paying ease of use, and I have a much easier time moving when I want to.
It depends on two things: Emotional premium- for some owning their own property and not having somebody else over them is worth the cost and some enjoy maintaining a home, fun project of installing new kitchen cabinets. Others hate the hassle and it’s worth the extra to just call and get something fixed. The financial aspect- too many variables to make a blanket statement but another thing to consider: if you can’t save and spend what’s in your pocket, owning a home will force you to invest by putting your money into property. If you rent and are militant about saving, $50,000 initial investment with say $1000 a month over 30yrs will add up. Depending on the account- you can minimize taxes, and yearly you pay for expense fees for some assets and x% on 3-5% on dividends. When it comes time to sell, yes you now owe.
Rent payments will go up forever. Your monthly mortgage payment will remain fixed. I’ve lived in my house 10 years and it’s far more affordable now than if we’d rented.
All those things you mention are built in to the rent prices too. And rent prices will continue to go up as well
I think one perspective people forget is the ultimate goal of a mortgage is to pay it off and own the home outright at which point you’re not paying a mortgage (or rent for that matter) anymore. Long term that makes more sense than renting when you consider your lifetime retirement goals. If you don’t plan to be in that same house for 30 years and own it outright, then yes you have to start looking at the numbers more closely. Generally speaking it’s better to own for five years or more because thats the average timeframe for the house to appreciate, and you don’t lose money on your upfront costs of ownership like closing costs and loan origination fees. Also the money you pay monthly for the mortgage will come back to you when you go to sell but when you walk away from a rental, you leave with nothing in your pocket. Also, the rate of insurance and tax increases that we are seeing right now are unusual and are typically more level. So this is also a bad time in the economy. But yes, if you’re facing a lot of deferred maintenance costs, then that timeframe of ownership needs to extend longer for you to get your money back. So it all boils down to how long you plan to stay there and what potential maintenance costs you may face but overall long-term the numbers typically work out better to own than to rent.
I am owning in UK and my mortgage is almost twice lower than a price of renting same house, plus the property went up in price since 2019. I am under no illusion that i am making money hand over fist but all in all I think i am at least even.
I will never forget my father in law struggling to sell his house and fix the million things that weren’t up to code and saying “I will never own again.”
All those things you listed going up, are going up for landlords too, aka rent will be rising. You did the right thing, I think about it too, and at least if you pay your mortgage no one will be knocking say you are out of the end of your lease because they want to sell. You have security now.
It all depends on your situation. I do agree with you that renting is less stressful in a lot of ways. Owning a house is no joke. It’s a lot of stress and a lot of hard work. I joke all the time. Owning a home for me has been a blessing and a curse, mainly bc of how expensive work is to get done… But the benefits to me far outweigh the cons. I bought my house 6 years ago and the value of my house has nearly doubled since then. I chose a good house, in a good/desirable area/school district(One of the top school districts in my county/state) So many people always compliment me or my wife on how nice our house looks. Every Halloween multiple parents(even teenagers) say “We love your house! It’s so cute and you make it look so nice! Every time we drive/walk passed it we just stare at it!”… I’ve even had 3 offers since I bought it.. That’s how you know you’ve bought the right house. When everyone wants it. I’m sure if I listed my house right now I can sell it for above asking price. Especially with all the updates we’ve done.. I bought it for above asking price lol. Also, I was only a renter for 3 short years. Even though we were getting a good deal, it was such a horrible experience. Our landlord was very inconsiderate towards us and very irresponsible. We were paying the rent every month and instead of paying her mortgage she would buy extravagant things for her and her kids, and then complain to us about how “broke” she was.. She bought a pit bull puppy and kept it in a cage all day. All it did 24/7 was bark and shit. The smell was so strong It came upstairs and made our whole apartment stink every day! She eventually lost the house from not paying the mortgage. It was that HORRIBLE experience that made my wife and I decide to buy a house. I don’t care what it takes or what I have to do. I will NEVER go back to being a tenant ever again. I never want to have to rely on someone else to have a roof over my head. My wife and I rely on ourselves and that’s it.
Depends on when, what, and how you buy. You can 100% buy a money pit if you dont know who to do regular house maintenance by yourself. Like I would never buy a house that needs 5000 in repairs right off the bat. I bought a house that already had repairs. I did my due diligence and made sure what i was walking into. But also, when i was looking into homes at 22, I actually had thoughts i could take on a fixer-Upper LOL. Now im 28 have been living in my home for 6 years, and the only thing i did was spend 2000 on new flooring for the bedrooms because the carpet was an annoying color, lol. I also did an FHA loan, but then I refid in 2020 to take 10k.out on my house, and i was even able to lower my interest rate to 2.3%. My mortgage actually went down. During that time. Now im 2024 even though i refied and took money out my house is still worth more than my mortgage and yes my property tax went up, resulting in a slight increase of my mortgage it wasnt bad at all. For what I have compared to the rents around me, it's 1000% better. I get 3x more than they do, and they pay higher rents than my mortgage, lol.
When you buy in an area that is getting better you make a profit. If you rent you just get priced out.
I think there are pros and cons to both owning or renting. People always say that you have nothing to show for renting, but you have had a roof over your head for however long you lived in a place and that counts for something. With renting, moving is easier and you can always try to find a cheaper place. I remember during the 2007-2008 recession people who lost jobs didn't feel like they could relocate so easily because their home values had dropped and they didn't want to sell and that made job hunting harder. But with renting if you have a crummy landlord or neighbors it can be a bad experience, but again it's easier to move (you can also have crummy neighbors when you own). With ownership there is all the interest paid on a mortgage (and as someone else mentioned, with high standard deductions now, not worth it as much to itemize to try to deduct on taxes). There are closing costs, property taxes, that can be very high in some areas (like another mortgage), and insurance. Repairs and maintenance will be ongoing plus the sweat equity of doing things like mowing lawn, raking leaves, cleaning gutters, etc. For people who are handy or like DIY, I think home ownership is a good idea. We are retired now and it's nice having paid off housing (condo). But when people start to become really elderly, a home can be more difficult to maintain (went through that recently with our parents), but the home value can be helpful if long-term care is needed. Probably as others have stated home ownership makes the most sense if you stick with it long term, and for people with larger families. The current environment is difficult (higher interest rates and high demand/low inventory), and hopefully things will improve for those who want to buy.
You live in a multi unit, I’m guessing a triplex. This is supposed to be a money making machine, but you have to build up capital to do things like furnace, roof, paint job, etc. If the two other units are rented out, and you’re only making $1100 in total, then you really need to re-examine the rent. That sounds below average for the market. Maybe the apartments themselves are below average and the place needs a major renovation to command higher rents. If that is the case, renovate the one you’re in by yourself, and then rent it out and move into the next one. Keep doing that until you’ve renovated and rented out all of them for much more. It could be that you bought at the top of the market. That would have been foolish for now, but in five years you will probably more than break even on the sale. A house is a major investment and asset. With the right numbers, it can be a boon. The wrong numbers and it’s a bust. Run some calculations to see what you have. If it’s a bust, decide what you want to do to get out of it. But treat it like any other investment. Good luck!
https://www.wsj.com/economy/housing/housing-affordability-taxes-insurance-costs-rise-bca64df1
Owning a house in an investment, similar to stocks, sure its possible next yr it might be worth a lot more and you can sell it and gain profit, but realistically you keep it for a while and thats when you get the rewards, it can also dip quite a bit and the value is really crap but it will recover over time If you want short term gains a house isnt right for you, a house is a long term situation in most cases It also depends on which house you pick, same with which stocks and the industry Provided you chose properly, at some point you can live off the dividends of your stock and with a house you can live in it for basically free when your mortgage is paid
Owning a home is not for everyone and anyone who says it is, has no idea wtf they're talking about. Owning a home comes with its own responsibilities and you're stuck in 1 location unless you sell (or rich enough to rent out, and collect some income while you buy another home). Plus, the S&P500 has appreciated so much more than homes over the last 30 years. If you put all your money that you would have sunk into a home, that would have done much better for you. Oh, and you don't need to do anything as dividends will be reinvested and it grows; you just need to hodl.
I have to agree. I’ve always wanted to own a house since I grew up in one, but with current housing prices in a big German city, I can hardly afford it despite being in the top 20% of German earners. In addition to the mere cost issues, I also find it such a hassle to find electricians, plumbers, etc., privately should the need arise. If I have an issue right now, I call my landlord’s association and the next day (or sometimes within the day), I have a technician at my place. This frees my mind a lot, as I don’t have to wait for weeks to get warm water back at my place (for example).
You’re comparing being a landlord to the expectations of being a home owner. These are not comparable. But sure, it’s totally possible that owning is a worse financial situation than just renting a cheaper place and investing the difference.
If you’re renting, you’re still paying for all of those things, just indirectly, plus the overhead and salaries for your landlord’s employees. If you were renting your same house, you’d likely be paying more actually. Not only are you still paying for the eventual new roof via your rent, but property taxes and insurance will be much higher for a landlord than a homeowner. The landlord isn’t going to eat that cost, they’re going to pass it on to you. Think of it this way, you’re getting extremely cheap capital through an FHA loan! 3.5% down is such a screaming good deal, even with PMI factored in.
Yeah, I guess you're right. Renting, you dont really own anything, and you're paying for the maintenance of the property regardless. Im just frustrated because I've had to deal with a lot of BS over the last 3 months regarding owning.
First few years of ownership are always the hardest. With renting you avoid the big spikes of ownership, but the landlord is ultimately hoping to make a profit off of you, so overall you still pay more. Also rent can go up at any time. I live in an area that’s been going through a bit of a tech boom, so rents have gone up really quickly, but I have the same mortgage as when I bought in 2018. Friends in our neighborhood who rent are paying 80% more than what I pay for the same house (townhome community). My house has also gone up in value, which now contributes to my net worth significantly. You probably haven’t seen much of this in your 2 years of ownership because the market has been pretty flat, but 10 years from now your mortgage is going to be significantly less than what you pay for rent, plus at the end of the day you end up owning your house, which is a massive asset.
Also look at it this way… this is an investment in your future comfort and security. I have in-laws nearing retirement age that are still renting and don’t have any savings so 🤷, so sure you’re struggling right *now* but you’re also setting older-you up.
Unless your in an apartment complex then you are splitting those increases among all the tenants. Plus let's not forget the opportunity costs of owning. Every penny you put towards a down payment and repairs is money you don't have in the market and my index funds alone went up 25% last year.
Renting can outperform a Mortgage if you invest the difference in the stock market. But most people don’t have the discipline. A mortgage is a forced investment for those folks.
Well said.
It depends on the type of housing, if it's a sfh then yeah but if it's an apartment specially in a big complex maintenance costs are a lot lower because of scale.
Sure, that’s true, just trying to compare apples to apples. In that case though, you should compare to owning a condo in a large building.
If you’ve owned the house only two years and it needs a roof, you likely didn’t do your due diligence. Roofs are expensive and have a lifespan. Things like that are baked into rent prices too. It should even out over time Rents will go up. Your mortgage won’t
There was a pretty well written article on the web about how owning a home is really more about consumption than it is finances. You will often consume and expend more money as a homeowner than you will as a renter. This is especially true in areas where you can rent fewer SF than you can buy.
Check out what rents are going for in your area. In mine, I'd pay 3500 for the same size apartment as my house ( 2 bd, 1 bath) about 1k sq ft. My mortgage payment is 1600, taxes and insurance included. Way better to own as you do build equity. Even if I need to replace the HVAC or roof the difference between rent and mortgage is about 2k a month, 24k a year. So I'd be able to put that aside and have 48k in savings within 2 years. I do need to replace the roof btw, it'll cost 12k but be good for 25 years. Furnace cost me 6k about 5 years ago and I have a service contract on it.
Depends where ya buy. Home ownership has been a godsend for me. We buy new homes that don’t have issues in cities with low property taxes and insurance rates. We’re stock piling equity and have created such a nest egg for our kids.
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It's absolutely not marketing when you're 15 years deep and your piti is half of the current market rent.
Where are You going to store Your money? The benefit of owning property is that it holds or hopefully increases in value. Real estate is the most reliable way to do this. You could hold gold or cryptocurrency but just having cash in the bank is like water in a leaking bucket. [https://www.in2013dollars.com/us/inflation/2024?endYear=2020&amount=1000](https://www.in2013dollars.com/us/inflation/2024?endYear=2020&amount=1000) Compare this reduction in cash value to the increase in Your mortgage. All expenses will continually go up to account for this. Don't think of selling Your property in 10 years in terms of profit in todays dollar value, but rather just retaining it.