Renting for life - a bad idea?

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stocknoob4111
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Renting for life - a bad idea?

Post by stocknoob4111 »

Dave Ramsey recently had a guest on who asked about this, she wanted to get rid of her house and rent for the next 30 years due to the flexibility it offers. He strongly advised against it with this statement.. and I quote verbatim : "Since rents are constantly going up you are destabilizing your life. Renting for 30 years means that you are a victim of the Real Estate market instead of riding the wave"

https://www.youtube.com/watch?v=-CMlPY7eNJ4

What are your thoughts on this? I am a renter and this has always concerned me.. exposing myself to wildly vacillating housing costs, and exposing myself to a situation where i'll be just priced out totally if there is widespread inflation.

On the other hand it may be not be such a big deal as rents will only go up so much as incomes, and incomes don't seem to be inflating and there is little chance they will in the next 20 years.

Asking this question because I've been a renter all my life and intend to continue being a renter... but from time to time I heard this type of argument and wonder if there are risks and try to understand how legitimate these risks are and the consequences of these risks.
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Nate79
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Re: Renting for life - a bad idea?

Post by Nate79 »

stocknoob4111 wrote: Tue Mar 09, 2021 9:38 am Dave Ramsey recently had a guest on who asked about this, she wanted to get rid of her house and rent for the next 30 years due to the flexibility it offers. He strongly advised against it with this statement.. and I quote verbatim : "Since rents are constantly going up you are destabilizing your life. Renting for 30 years means that you are a victim of the Real Estate market instead of riding the wave"

https://www.youtube.com/watch?v=-CMlPY7eNJ4

What are your thoughts on this? I am a renter and this has always concerned me.. exposing myself to wildly vacillating housing costs, and exposing myself to a situation where i'll be just priced out totally if there is widespread inflation.

On the other hand it may be not be such a big deal as rents will only go up so much as incomes, and incomes don't seem to be inflating and there is little chance they will in the next 20 years.

Asking this question because I've been a renter all my life and intend to continue being a renter... but from time to time I heard this type of argument and wonder if there are risks and try to understand how legitimate these risks are and the consequences of these risks.
I think there are a ton of rent vs buy threads on here, maybe a lifetime of reading. Have you searched those threads? There is probably one per week. It's not a black or white issue since no one can predict the future and there are a lot of variables involved. I would say that there is no consensus on this issue.
Triple digit golfer
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Re: Renting for life - a bad idea?

Post by Triple digit golfer »

It's an expense, just like other living expenses. Insurance, food, gas can all increase, and so can rent.

Owning a house exposes you to repairs, maintenance, and all kinds of other issues that you don't have as a renter. Don't fall into the trap of feeling secure in thinking that owning gives you a flat, known, monthly payment. Property taxes and insurance are 38% of my monthly payment and only increasing. With just 2% inflation in those areas (hah, highly unlikely in Illinois), they'll be more than half my monthly payment by the time it's paid off.

In addition, there are roofs, gutters, soffit, fascia, siding, windows, driveway, lawn, garage doors, and that's just the exterior. There's also the washer, dryer, dishwasher, stove/oven, furnace, air conditioner, water heater, sump pumps, flooring/carpeting...the list goes on and on.

Those are the things the "renting is throwing away money" people don't factor in.

Now, that doesn't mean that renting is a better deal. As with most things, it depends. And it depends on a lot of factors. Market, location, interest rates, and often times just luck. We had to replace our roof and HVAC within two years of moving in and really wasn't expecting any of it until about 5-10 years in. Stuff happens. My friend bought a house and replaced the dishwasher last year and that was the first and only thing he's replaced in ten years.
neverpanic
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Re: Renting for life - a bad idea?

Post by neverpanic »

Nate79 wrote: Tue Mar 09, 2021 9:49 am I would say that there is no consensus on this issue.
Without question, the consensus is that there is no consensus.

Most individuals occupy a fairly small range on the flexibility-to-stability continuum. It's probably safe to say our location on the graph will change as our priorities shift. A 24yo who is single, no kids may have the freedom to be more flexible than a 48yo who is married with 2 kids in middle school. Then a 72yo widower may want to sell all his things and spend the remainder of his life living wherever the next plane lands.

I have a very strong bias towards ownership, because the stability has value to me personally and also because I believe that type of stability adds value to a neighborhood which, in turn, means more value for me in terms of protecting wealth and general security. On balance, neighborhoods with higher rates of ownership tend to be safer, which adds value in multiple ways. I don't like being one notice away from being forced to move.

OP - Inflation is unlikely to price you out completely, though you may not be able to live where you want in 12 years. There will always be housing, but it may be an ever-increasing percentage of your income, which can be true for home buyers as well.
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BrooklynInvest
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Re: Renting for life - a bad idea?

Post by BrooklynInvest »

It depends

Helpful huh ;-)

I own a 2-family house and benefitted from rising rents and falling rates. Today, a buyer may see rates go up and housing prices stagnate and have a different experience. I've also owned 2 houses in 25 years. Friends that've bought/sold more often likely paid a lot to do so.

If you're likely to stay put for the medium- to long-term I think buying may make sense, but I don't think it's an automatic yes. Part of the home buying thing is adhering to cultural norms.

Also I just watched Nomadland!

Good luck OP,
sailaway
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Re: Renting for life - a bad idea?

Post by sailaway »

It's funny how people who tell my how much their house has appreciated since they bought it rarely tell me how much they have put into the house in that same time.

While it is true that the Zillow estimate for the condo I rent has gone up ~15% since I moved in, the s&p is up 40% in the same period. The increase in rent barely covered the increase in HOA fees. And my rent has been less than interest + taxes + HOA, never mind the difference between renter's and owner's insurance and both the dryer and the garbage disposal being replaced over that time.
Aged Maduro
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Re: Renting for life - a bad idea?

Post by Aged Maduro »

It depends of course on your situation. In my experience the great advantage of home ownership is when one buys a modest house then pays it off relatively quickly and lives there for the rest of their life. In these cases, a person is eliminating their greatest expense and the long term value of that imputed rent and cashflow for investment is substantial. Where home ownership goes off the rails is when people trade up to a larger, more expensive home every five to ten years using 30 year mortgages. In these cases, the homeowners are effectively building zero equity and just increasing their interest payments as well as their taxes, insurance and maintenance costs. This is what the typical American does as they have been fooled by real estate agents, mortgage brokers and other confidence men.

So, if you are going to buy homes like the average American then you are probably better off renting. If you are going to do it the old fashioned way and buy that affordable house and stay for the long term, then you are probably better off owning.
runner3081
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Re: Renting for life - a bad idea?

Post by runner3081 »

Aged Maduro wrote: Tue Mar 09, 2021 10:21 am It depends of course on your situation. In my experience the great advantage of home ownership is when one buys a modest house then pays it off relatively quickly and lives there for the rest of their life. In these cases, a person is eliminating their greatest expense and the long term value of that imputed rent and cashflow for investment is substantial. Where home ownership goes off the rails is when people trade up to a larger, more expensive home every five to ten years using 30 year mortgages. In these cases, the homeowners are effectively building zero equity and just increasing their interest payments as well as their taxes, insurance and maintenance costs. This is what the typical American does as they have been fooled by real estate agents, mortgage brokers and other confidence men.

So, if you are going to buy homes like the average American then you are probably better off renting. If you are going to do it the old fashioned way and buy that affordable house and stay for the long term, then you are probably better off owning.
This is so very true. We did that game (moving up) with two houses (2007-2012), lost money compared to renting. Back in 2013, we bought a house well below what we could afford, paid it off quickly and will keep it long-term. Now, we are better off buying, compared to renting (especially in the PHX area where rents are sky-high).
Last edited by runner3081 on Tue Mar 09, 2021 10:30 am, edited 3 times in total.
checkyourmath
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Re: Renting for life - a bad idea?

Post by checkyourmath »

It all depends upon the numbers. I do enjoy people buying housing right now. The numbers are absurd in most urban areas. The riding the wave thing is fun if you are lucky, but probably no so fun if the wave turns into a tsunami.
ponyboy
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Re: Renting for life - a bad idea?

Post by ponyboy »

I think people who say owning a home is better are ones who never renovate or improve their house. We rented for 10 years and have now owned for 4 years. I love owning a house, but its not that much cheaper than renting, for us anyway. Between property tax, insurance, increased utilities, home improvements...it costs almost as much as renting.

Of course, depending on where you live, property tax is cheaper in some places, more expensive than others. ymmv.

I always tell people I love being a home owner, but come every new year, the house is going to cost us $10k, at least. Thats not including mortgage which is only $670/month for 12 more years.
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Re: Renting for life - a bad idea?

Post by tibbitts »

neverpanic wrote: Tue Mar 09, 2021 10:08 am I have a very strong bias towards ownership, because the stability has value to me personally and also because I believe that type of stability adds value to a neighborhood which, in turn, means more value for me in terms of protecting wealth and general security. On balance, neighborhoods with higher rates of ownership tend to be safer, which adds value in multiple ways. I don't like being one notice away from being forced to move.
I agree with not wanting to be one notice away from being forced to move. That's much less likely in a corporate-owned location than a typical SFH that's individually owned. But about the stability issue, the flip side is that your largely owner-occupied neighborhood can turn into a largely renter-occupied neighborhood over a period of years.
SrGrumpy
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Re: Renting for life - a bad idea?

Post by SrGrumpy »

sailaway wrote: Tue Mar 09, 2021 10:15 am It's funny how people who tell my how much their house has appreciated since they bought it rarely tell me how much they have put into the house in that same time.
Gosh. I don't want to think about it! Especially with the possibility of having to pay $40k to replace some rotting joists. Still, it's the first - and hopefully only - house I will ever own. And it was paid off within 12 years. Maybe if I were starting over, or more itinerant, I'd pay more attention to the pros and cons. Buying just seemed like the natural thing to do when I was 27 and single. It's been a ball and chain since - sometimes digging into my ankle, other times comfortably snug.
SQRT
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Re: Renting for life - a bad idea?

Post by SQRT »

The real estate market, both ownership, and rental is extremely location dependant. But in general the relationship between rent costs and ownership costs will be in balance and not give a permanent advantage to one vs the other. So from a financial perspective there should be no permanent reason to pick one over the other.

But it’s not all financial. Flexibility versus control will be personality dependant. I need control others may want flexibility. So like others have said, it depends.
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Svensk Anga
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Re: Renting for life - a bad idea?

Post by Svensk Anga »

I think it depends on the local market. I supported my son when he elected to buy because his carrying costs for a nice 3 BR house were noticeably lower than for a decent 2BR apartment. In other markets, the situation can be reversed.

If renting is indeed cheaper, the savings can be invested in equities which should appreciate more than housing prices. House prices are expected to keep up with inflation or barely more. Your growing portfolio and hopefully some real salary growth ought to make inflating rents affordable.

In retirement though, I think a paid off house improves your prospects. As a renter, your portfolio ought to become more conservative as you retire, in order to reliably cover high fixed expenses. It becomes more difficult to outpace inflation. The owner is insulated from inflation in housing. Some states cap property tax increases or even defer taxes for seniors, so even that portion of housing cost need not inflate. (I’ve been paying essentially the same nominal amount for property taxes in Florida for 20 years.)
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fredflinstone
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Re: Renting for life - a bad idea?

Post by fredflinstone »

It depends on the individual's circumstances.

The following factors arguing in favor of owning vs renting:

- home prices low relative to rents
- individual in question has little need/desire for flexibility
- individual is handy and/or enjoys home maintenance
- individual lives in a place like Florida or Texas in which homesteads are completely exempt from creditors
- individual believes that home prices will rise during the next few years.
- indivdual cannot obtain a home he or she wants as a renter
- individual desires a large mortgage for tax purposes.

In some circumstances, renting is a reasonable option -- particularly if flexibility is important to you.

If even renting does not give you enough flexibility there is another option you may wish to consider: living out of AirBNBs full time. This is less costly than many people think and provides almost limitless flexibility.
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vtjon02
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Re: Renting for life - a bad idea?

Post by vtjon02 »

Aside from the financial differences, it is a personal decision.

Not having to move is enough of an incentive for us to own vs rent.
KlangFool
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Re: Renting for life - a bad idea?

Post by KlangFool »

stocknoob4111 wrote: Tue Mar 09, 2021 9:38 am
What are your thoughts on this? I am a renter and this has always concerned me.. exposing myself to wildly vacillating housing costs, and exposing myself to a situation where i'll be just priced out totally if there is widespread inflation.

On the other hand it may be not be such a big deal as rents will only go up so much as incomes, and incomes don't seem to be inflating and there is little chance they will in the next 20 years.
stocknoob4111,

If you are not paid well enough to live in one area, you can leave as a renter. Meanwhile, those house owners are stuck. That is the fundamentals.

Not many of us can be safely said that we will live and work in location Y for X number of years. Hence, we will be taking a huge risk to buy a house in any location. IMHO, it only makes sense if

A) The PITI (Principal, Interest, Property Tax, Insurance) is 20% to 30% lowered than renting.

and

B) The house can be purchase assuming ZERO or NEGATIVE appreciation.

During Telecom Bust, many of my peers are stuck paying mortgage for their old house in the old location while paying rent in the new location. They have to relocate in order to get a new job.

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Flannelbeard
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Re: Renting for life - a bad idea?

Post by Flannelbeard »

checkyourmath wrote: Tue Mar 09, 2021 10:29 am It all depends upon the numbers. I do enjoy people buying housing right now. The numbers are absurd in most urban areas. The riding the wave thing is fun if you are lucky, but probably no so fun if the wave turns into a tsunami.
The median home purchase price in our neck of the Greater Boston Area is about a 23-25x multiple of our rent. It truly boggles the mind.

We make 2.5x the median household income in the towns that we're shopping in and we feel "priced out" (not in terms of what the bank will loan us, but what we feel is reasonable to spend to end up with a payment we feel is fair compared to our rent).

Who is sustaining this market? People FOMO buying at 5x their household income? It all feels so eerie.
Carguy85
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Re: Renting for life - a bad idea?

Post by Carguy85 »

It seems that the answer is somewhere in the middle as with most things. Buying way more house than you can truly afford (yes banks will gladly make you house poor and far to many seem to do this) and being subject to ever increasing rent and other negatives that come with being a renter are both not good. Along the same lines is the paying your mortgage off vs investing debate...if you are not house poor then it’s too minimal of a potential gain on net worth to invest with needless risk. The house poor thing is not necessarily a net worth or % of income thing... depends on where you are at in the game as to which is best to gauge this. Just my conclusions/2 cents
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Re: Renting for life - a bad idea?

Post by Aged Maduro »

runner3081 wrote: Tue Mar 09, 2021 10:29 am
Aged Maduro wrote: Tue Mar 09, 2021 10:21 am It depends of course on your situation. In my experience the great advantage of home ownership is when one buys a modest house then pays it off relatively quickly and lives there for the rest of their life. In these cases, a person is eliminating their greatest expense and the long term value of that imputed rent and cashflow for investment is substantial. Where home ownership goes off the rails is when people trade up to a larger, more expensive home every five to ten years using 30 year mortgages. In these cases, the homeowners are effectively building zero equity and just increasing their interest payments as well as their taxes, insurance and maintenance costs. This is what the typical American does as they have been fooled by real estate agents, mortgage brokers and other confidence men.

So, if you are going to buy homes like the average American then you are probably better off renting. If you are going to do it the old fashioned way and buy that affordable house and stay for the long term, then you are probably better off owning.
This is so very true. We did that game (moving up) with two houses (2007-2012), lost money compared to renting. Back in 2013, we bought a house well below what we could afford, paid it off quickly and will keep it long-term. Now, we are better off buying, compared to renting (especially in the PHX area where rents are sky-high).
Glad it worked out for you. This is the kind of old school mentality that Dave Ramsey advocates for...and it works.
Carguy85
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Re: Renting for life - a bad idea?

Post by Carguy85 »

Aged Maduro wrote: Tue Mar 09, 2021 10:58 am
runner3081 wrote: Tue Mar 09, 2021 10:29 am
Aged Maduro wrote: Tue Mar 09, 2021 10:21 am It depends of course on your situation. In my experience the great advantage of home ownership is when one buys a modest house then pays it off relatively quickly and lives there for the rest of their life. In these cases, a person is eliminating their greatest expense and the long term value of that imputed rent and cashflow for investment is substantial. Where home ownership goes off the rails is when people trade up to a larger, more expensive home every five to ten years using 30 year mortgages. In these cases, the homeowners are effectively building zero equity and just increasing their interest payments as well as their taxes, insurance and maintenance costs. This is what the typical American does as they have been fooled by real estate agents, mortgage brokers and other confidence men.

So, if you are going to buy homes like the average American then you are probably better off renting. If you are going to do it the old fashioned way and buy that affordable house and stay for the long term, then you are probably better off owning.
This is so very true. We did that game (moving up) with two houses (2007-2012), lost money compared to renting. Back in 2013, we bought a house well below what we could afford, paid it off quickly and will keep it long-term. Now, we are better off buying, compared to renting (especially in the PHX area where rents are sky-high).
Glad it worked out for you. This is the kind of old school mentality that Dave Ramsey advocates for...and it works.

Exactly
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Watty
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Re: Renting for life - a bad idea?

Post by Watty »

A lot depends on your location. With the current low interest rates in my subdivision the monthly payments for buying a house, even with a low down payment, are less then it would cost to rent a similar house in the subdivision. You would have additional costs for maintenance and property taxes but there is no way that renting a house in my subdivision for decades would make sense when you could buy one instead.

There another active thread about this where I posted this.

viewtopic.php?f=1&t=342320

Watty wrote: Sun Mar 07, 2021 5:30 pm
bertilak wrote: Sun Mar 07, 2021 12:41 pm About flexibility: This means leaving your options open. Someday you may change your mind about home ownership, or other things.
+1

For some people being lifetime renters can work but you would need a much larger retirement nest egg. If you change your mind and decide to buy a house or condo someday then you can use part of that nest egg to purchase the property.

There are all sorts of assumptions and qualifications but past academic studies have shown that in the past you could start a 30 year retirement with about a 4% safe withdrawal rate(SWR) For example to be a life long renter you might need a nest egg that is about $500K larger when you are 65 to generate $20,000 a year in income to pay the rent. There are lots and lots of details for things like maintenance, property taxes, inflation, etc to try to compare that to buying a house.

This comparison is not exact though because as you get older your nestegg will likely be spend down and get smaller. For example if you are 90 the size of the nest egg may be pretty small so it would not help much if you needed to go into long term care. Someone who had a paid off house could sell the house to help pay for long term care.

You may also need an even larger nestegg since you will not have the home equity to act as a safety net. For me one thing that is nice about having a paid off house is that if I really needed to I could get by OK in a very frugal sort of way with just my Social Security and the paid off house.

With a larger nestegg and higher annual spending you would also have more sequence of returns risk.
jastevenson wrote: Sun Mar 07, 2021 10:49 am I just don't want to deal with the hassles and need the flexibility.
Sometimes you can either rent or buy identical condos in the same building so the hassle factor may not be that important in some situations. Here is a rent vs buy calculator that you can play with to see what is better for a specific situation.

https://www.nytimes.com/interactive/201 ... lator.html

The flexibility can be nice so that is important to some people, but that is also a double edge sword. You could end up having lived in the same apartment for 20 year when you are 75 years old but the landlord might not renew your lease. Being forced to move when you are 75+ years old would be a risk to being a long term renter.

You also need to understand the concept of "imputed rent"(Google this) and how it impacts your taxes. If you rent a condo then you will need additional income to pay the rent and that may cause you to pay more in taxes the someone with an identical paid off condo next door who does not have a rent payment.

This example is a bit contrived but I have a paid off house in a medium to low costs of living area. An over 65 couple with with $40K in Social Security and $22K in taxable income would pay no federal income tax. With a paid off house that is enough for comfortable middle class retirement.

After allowing for things like property taxes, maintenance, and income taxes someone would likely need around $20K in additional income to be able to afford to rent a similar house in my neighborhood. With $40K in Social Security and $42K in taxable income they would have to pay almost $4,000 in federal income taxes.
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JoMoney
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Re: Renting for life - a bad idea?

Post by JoMoney »

I agree with Dave if you expect to live in the same place for roughly 5 or more years.
If you expect to move around more frequently, renting makes a lot of sense. I think it's worth noting that the statistics I've seen show American's move on average about every 5 years.

There are also lifestyle considerations though, that only you/your family can put a 'price' on. Some people don't want the hassles that come with being an owner, when the plumbing bursts or the roof starts to fall apart, there's something nice about that not being your financial problem. Sometimes being able to make improvements to the home to suit you, or to be in a certain school district or neighborhood requires being an owner.
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Re: Renting for life - a bad idea?

Post by weirdsong1 »

It's obvious that plenty of people have made compelling arguments in favor of renting forever. However, I am personally swayed by the fact that by owning, my "rent" will one day be $0 (save for property taxes, et al). And seeing that it corresponds to a time in my life when I hope to minimize expenses, that's a rather appealing prospect (even if I could have theoretically have made more investing that 'owning a home' capital elsewhere).
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Re: Renting for life - a bad idea?

Post by humblecoder »

Aged Maduro wrote: Tue Mar 09, 2021 10:21 am It depends of course on your situation. In my experience the great advantage of home ownership is when one buys a modest house then pays it off relatively quickly and lives there for the rest of their life. In these cases, a person is eliminating their greatest expense and the long term value of that imputed rent and cashflow for investment is substantial. Where home ownership goes off the rails is when people trade up to a larger, more expensive home every five to ten years using 30 year mortgages. In these cases, the homeowners are effectively building zero equity and just increasing their interest payments as well as their taxes, insurance and maintenance costs. This is what the typical American does as they have been fooled by real estate agents, mortgage brokers and other confidence men.

So, if you are going to buy homes like the average American then you are probably better off renting. If you are going to do it the old fashioned way and buy that affordable house and stay for the long term, then you are probably better off owning.
I think you are conflating two separate decisions. The decision that the OP is talking about it "rent vs buy". The decision that you are talking about is "payoff off mortgage vs keep assets liquid". Whether it makes sense to pay off one's mortgage early depends on the situation. The tradeoff is that you are putting money into an illiquid asset, where you may be better off keeping your money liquid. Not saying that this is a bad choice, but I wanted to acknowledge that whether this makes sense depends on your circumstances. It isn't a slam dunk one way or the other.
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Re: Renting for life - a bad idea?

Post by enclee »

I think it can be advantageous as it allows an individual to change course much easier and take advantage of opportunities. People usually tend to rent down and buy up, and that’s something behavioral that can’t be quantified on a broad based analysis.
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Re: Renting for life - a bad idea?

Post by LittleMaggieMae »

stocknoob4111 wrote: Tue Mar 09, 2021 9:38 am What are your thoughts on this? I am a renter and this has always concerned me.. exposing myself to wildly vacillating housing costs, and exposing myself to a situation where i'll be just priced out totally if there is widespread inflation.

On the other hand it may be not be such a big deal as rents will only go up so much as incomes, and incomes don't seem to be inflating and there is little chance they will in the next 20 years.

Asking this question because I've been a renter all my life and intend to continue being a renter... but from time to time I heard this type of argument and wonder if there are risks and try to understand how legitimate these risks are and the consequences of these risks.
Have you ever done an Excel Loan Amortization schedule? It's a standard template. You might even be able to find such a "spreadsheet" template in other applications that do "spreadsheets". Or you can google and look for an online Loan Amortization calculator - you are looking for one that will tell you how much in interest you will pay over the life of the loan.

FYI: Say you purchase a $250K house/condo/townhouse with a 200K 30y mortgage at 3% you will spend 103,555 in interest if you pay it as scheduled with 360 monthly payments. When you've made the final payment - you've spent $353,555.00 on your house/condo/townhouse. You then need to add in 30y of property taxes and insurance. Let's say these NEVER increase and cost $500 for insurance and $2K for property taxes - that's another 75K that you've spent on the house/condo/townhouse. And then there's the maintenance expenses (in 30y you will need a roof, appliances, HVAC, waterheater, sump pump, etc. You will likely repaint/new flooring (carpet). And a thousand other little odds and ends (drains under sinks fail, faucets fail, ceiling fans wear out, light fixtures sometimes fail, etc)

That 'cost' in interest on the mortgage is about the only 'expense' you have some say over. It's the only one you can "save money on" by prepaying the mortgage. That's one of the reasons people are so hot to pay off their mortgage sooner than later... it removes ONE of the expenses (possibly the biggest) of owning a home.

Also, don't forget that a landlord isn't always raising your rent because they can - odds are their expenses are going up - they are paying property taxes, insurance(s), hoa fees, and possibly some utilities. Unlike my example above - those cost usually go up yearly - some creep slowly some go up in leaps and bounds. The landlord has to pay them and they pass those costs on to you. (you'd face the same increases on these if you "owned" your own home.)

Buying and Selling a house/condo/townhouse is an expense in addition to the cost of moving. That's one of the reasons for the "hold the house for 5 years or longer". If you pay down the mortgage 20K over the 5 years but have to spend 6% of the sale price for "selling costs" - you might not be walking away from the sale with much more than your down payment.

I think the choice of buying versus renting is personal and depends on your location, your job, your life situation.
Last edited by LittleMaggieMae on Tue Mar 09, 2021 11:48 am, edited 1 time in total.
grok87
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Re: Renting for life - a bad idea?

Post by grok87 »

stocknoob4111 wrote: Tue Mar 09, 2021 9:38 am

On the other hand it may be not be such a big deal as rents will only go up so much as incomes, and incomes don't seem to be inflating and there is little chance they will in the next 20 years.

i'm guessing you don't live in a coastal metro area
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Mike Scott
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Re: Renting for life - a bad idea?

Post by Mike Scott »

Buying is not just a financial decision. Renting has some different advantages. Pick your personal preferred flavor.
MathWizard
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Re: Renting for life - a bad idea?

Post by MathWizard »

We own because we have a family, (and a lot of stuff). I do not consider it an investment.

It does lock up a lot of capital, and ties you to one place. If I were young and single, I would
rent.

The decision is one of lifestyle. I can make changes to my house, but I also have to maintain it.
It is also not free living space.
Even with no mortgage, I plan on spending about $9000/year in property taxes and maintenance.
I also have to shovel the walk and mow the lawn.

Of course, as empty nesters, we have much more room than we need, and we don't need to be
next to an elementary school, but we have lots of room for grandchildren (we hope for in the future).
Marseille07
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Re: Renting for life - a bad idea?

Post by Marseille07 »

Yes, it is a bad idea in my opinion. Owning requires money upfront but reduces expenses over time, and there's no one threatening to jack up the rent with a 45-day notice. I think willthrill81 talked about the importance of reducing expenses, and housing is one of the biggest expenses you *can* actually reduce.
Peaceful
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Re: Renting for life - a bad idea?

Post by Peaceful »

I think it's more of a lifestyle choice, and partially demographics. Unattached or child free young adults often don't want to be tied down to home ownership, and with all the potential hassles of home ownership, who can blame them. Then, when children arrive, the "nesting instinct" plus a need for more space, and more stability in terms of control over what goes on in that living space, provides incentives towards home ownership. Plus in the U.S. at least there are various incentives for home ownership such as tax deductions, government-backed mortgages (which reduces their cost to the home buyer), etc. I also think that when people shift from renting to home ownership, they also tend to increase their housing-related consumption.
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djpeteski
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Re: Renting for life - a bad idea?

Post by djpeteski »

neverpanic wrote: Tue Mar 09, 2021 10:08 am
Nate79 wrote: Tue Mar 09, 2021 9:49 am I would say that there is no consensus on this issue.
Without question, the consensus is that there is no consensus.
The one thing that we can probably come to a consensus on, is that if one trades houses frequently, then they are probably better off renting. I just did so, after 16 years in a home, and it costs me close to 50K to complete the transaction. That is a big expense to take on every five years or so.

The mantra of constant refinancing and continuing to trade up in houses, offered by real estate people, will rob you of wealth.
Flannelbeard
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Re: Renting for life - a bad idea?

Post by Flannelbeard »

LittleMaggieMae wrote: Tue Mar 09, 2021 11:31 am The landlord has to pay them and they pass those costs on to you. (you'd face the same increases on these if you "owned" your own home.)
I've always wondered if this is actually true when it comes to rentals in large apartment complexes. I would assume they're able to operate at economies of scale in that they pay much less in property taxes per unit than SFH owners do. Granted we're not comparing apples to apples, but at least in my area most of the rental stock is in these types of apartment complexes rather than SFHs.

Additionally there's no rule or law that a landlord has to make a profit by renting out a house. Their costs may increase, but a landlord may be unable to pass them on to their tenants because the rent they are charging for the unit is already at the maximum that incomes in the area will bear. Also, some landlords willingly choose to rent at a loss in this type of market because they speculate that home price appreciation will outweigh what they're losing each month.
drk
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Re: Renting for life - a bad idea?

Post by drk »

stocknoob4111 wrote: Tue Mar 09, 2021 9:38 am He strongly advised against it with this statement.. and I quote verbatim : "Since rents are constantly going up you are destabilizing your life. Renting for 30 years means that you are a victim of the Real Estate market instead of riding the wave"
This is just fear-mongering.

It's fine to rent short-term or long-term. It's fine to buy long-term. You rarely want to buy short-term.
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FIREchief
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Re: Renting for life - a bad idea?

Post by FIREchief »

stocknoob4111 wrote: Tue Mar 09, 2021 9:38 am Dave Ramsey recently had a guest on who asked about this, she wanted to get rid of her house and rent for the next 30 years due to the flexibility it offers. He strongly advised against it with this statement.. and I quote verbatim : "Since rents are constantly going up you are destabilizing your life. Renting for 30 years means that you are a victim of the Real Estate market instead of riding the wave"
I believe that Dave Ramsey's gospel is very helpful to a lot of people. I also believe that the above is meaningless. I've known people who got trapped in houses when the neighborhood suddenly deteriorated and they couldn't afford to sell. I've known people with roofing/plumbing/foundation disasters that made their lives miserable. Houses are a huge liability and generally not scalable to need. Sure, if you've outgrown the existing house and have the land, you can pay for an extension/remodel that will return 50 cents on the dollar if you sell next year. That ain't much of a wave to ride. I've seen more "victims" of the real estate market on the owning side.
Asking this question because I've been a renter all my life and intend to continue being a renter... but from time to time I heard this type of argument and wonder if there are risks and try to understand how legitimate these risks are and the consequences of these risks.
I will be a renter the rest of my life. I've owned three houses (2 years, 9 years, 20+ years). I made money on exactly one of them, despite spending minimum money on improvements and doing most of the routine maintenance myself. I probably could own for cheaper than I rent, but life is not all about money. Renting makes my life enjoyable 365 days a year. Saving $500 per month by owning would allow me to take a modest one week vacation. If I can't do both, I'm renting. 8-)

I think people ignore the economies of scale of renting. My apartment complex prorates the professional landscaping over 200+ units. It also maintains a full time maintenance staff rather than having to outsource most maintenance. If I owned, I would pay a LOT more for landscape services and that handyman would cost me $60 an hour plus travel time instead of the $25 per hour that the maintenance guys here are getting paid. Being new construction, we have robust life safety systems (sprinklers, etc.) that somebody else ensures is kept up to NFPA standards.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
BeTheMatch
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Re: Renting for life - a bad idea?

Post by BeTheMatch »

Watty wrote: Tue Mar 09, 2021 11:08 am A lot depends on your location. With the current low interest rates in my subdivision the monthly payments for buying a house, even with a low down payment, are less then it would cost to rent a similar house in the subdivision. You would have additional costs for maintenance and property taxes but there is no way that renting a house in my subdivision for decades would make sense when you could buy one instead.
I disagree. There can easily be hundreds of thousands of dollars' worth of repairs/maintenance/upgrades plus property taxes and insurance over the course of many years of home ownership. And that doesn't even take into account being trapped somewhere because you can't sell your house or you can't sell it for what you need in order to move and buy again.

I think the case for renting is much stronger than people realize, particularly if you can find a stable rental situation.
59Gibson
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Re: Renting for life - a bad idea?

Post by 59Gibson »

I do not think I'd want to be a renter for life, but I do believe once the prices start to reach 18- 20x+ yearly rent one needs to at least consider renting, at least in MCOL areas. HCOL- renting should probably be the default unless you're absolutely certain staying put 10-15yrs.
marc in merrimack
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Re: Renting for life - a bad idea?

Post by marc in merrimack »

Having owned my house now more than fifteen years, I’d have to agree with Bob Brinker’s sentiment that there’s a ‘psychic benefit’ to home ownership. That said, I’ve spent oodles of money on house maintenance and improvements and I’d be vastly wealthier in a dollar sense if I had rented and ‘market invested’ instead. But, of course, life should be more than accumulating dollars and I have little regret about it.

My father, on the other hand, well educated and a college professor, never owned a home. Just didn’t have the mindset and temperament for it. And I think it was the right decision for him.
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Watty
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Re: Renting for life - a bad idea?

Post by Watty »

One thing that may not have been mentioned is if you have a pension that is adjusted for inflation then that may make being a lifelong renter more attractive since you might be able to rent a nicer place than you could afford to buy.
Flannelbeard wrote: Tue Mar 09, 2021 12:22 pm
LittleMaggieMae wrote: Tue Mar 09, 2021 11:31 am The landlord has to pay them and they pass those costs on to you. (you'd face the same increases on these if you "owned" your own home.)
I've always wondered if this is actually true when it comes to rentals in large apartment complexes. I would assume they're able to operate at economies of scale in that they pay much less in property taxes per unit than SFH owners do. Granted we're not comparing apples to apples, but at least in my area most of the rental stock is in these types of apartment complexes rather than SFHs.
The best "apples to apples" comparison is that you can often rent or buy identical condos in the same building.
bi0hazard
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Re: Renting for life - a bad idea?

Post by bi0hazard »

Yes, renting long term is a very bad idea ( IMO). Same as leasing a car for life. Obviously, houses have added expenses like taxes, AC repair, etc (can be a money pit), but you still have equity, and that's what makes owning property a better choice for long term. I think arguments for long term renting are supported by long term renters. Owning may not be a good idea if you're a nomad and need to move every other year or simply if you cannot afford the house (30 year loans), again IMO. :beer
Tellurius
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Re: Renting for life - a bad idea?

Post by Tellurius »

It depends on country. You can buy flats in Cyprus with less than 0,5% of property value going to property taxes + municipality costs per year. You can buy houses where you pay 0,1% of property value in property taxes and municipality costs per year.

I strongly recommend retiring to Cyprus or remote working from Cyprus.
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Tellurius
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Re: Renting for life - a bad idea?

Post by Tellurius »

Also I have no idea how much home insurance costs in the US but in Cyprus I would expect 0,1-0,2% of property value per year
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T4REngineer
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Re: Renting for life - a bad idea?

Post by T4REngineer »

Curious OP what type of dwelling do you rent?
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geerhardusvos
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Re: Renting for life - a bad idea?

Post by geerhardusvos »

When considering rent vs buying: Check this out for starters
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phxjcc
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Re: Renting for life - a bad idea?

Post by phxjcc »

Triple digit golfer wrote: Tue Mar 09, 2021 9:52 am It's an expense, just like other living expenses. Insurance, food, gas can all increase, and so can rent.

Owning a house exposes you to repairs, maintenance, and all kinds of other issues that you don't have as a renter. Don't fall into the trap of feeling secure in thinking that owning gives you a flat, known, monthly payment. Property taxes and insurance are 38% of my monthly payment and only increasing. With just 2% inflation in those areas (hah, highly unlikely in Illinois), they'll be more than half my monthly payment by the time it's paid off.

In addition, there are roofs, gutters, soffit, fascia, siding, windows, driveway, lawn, garage doors, and that's just the exterior. There's also the washer, dryer, dishwasher, stove/oven, furnace, air conditioner, water heater, sump pumps, flooring/carpeting...the list goes on and on.

Those are the things the "renting is throwing away money" people don't factor in.

Now, that doesn't mean that renting is a better deal. As with most things, it depends. And it depends on a lot of factors. Market, location, interest rates, and often times just luck. We had to replace our roof and HVAC within two years of moving in and really wasn't expecting any of it until about 5-10 years in. Stuff happens. My friend bought a house and replaced the dishwasher last year and that was the first and only thing he's replaced in ten years.
I would like some more background here, for clarification.
Because...
At market rates and 80% LTV, P+I Is $0.50 per $100.
Taxes, for SFH even in expensive markets, is less than 3%.
Insurance, even with EQ coverage in CA is less than 0.5%.

Which yields a result of you have a low P+I--far less than an 80% LTV--which increases the percentage of T+I.

BTW, my percentage is close to yours, and I could not rent for what I am paying in PITI, even before tax deduction impact.
humbledinvestor
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Re: Renting for life - a bad idea?

Post by humbledinvestor »

Renting for life is fine. It's not a bad idea if your financials allow it. Non-renters will tell you "rent goes up", "you'll get kicked out when the owner wants to sell" etc. Really it depends. I have been renting for 3 years from a large company and my rent has not gone up. Again it depends, if there is a large supply of apartments and they need to compete they aren't going to raise your rent. If renting is the best situation for you, stick with it and adjust if needed. Property taxes also go up, neighborhoods change, repairs are needed. Also what is the value of your time? I don't enjoy being a part-time maintenance man by owning a home, so I don't own. Money I don't put in repairs, gets invested.
furikake
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Re: Renting for life - a bad idea?

Post by furikake »

If you don't have a lot of stuff and don't mind moving often, have you considered the type of arrangement where you house sit for people for 2-4 weeks at a time? They pay you to house sit. I know of a couple (I think they were in their 50's then) who did that, I think they're still doing it right now. Every few weeks they move to a new place. They don't have anything permanent at all. If you're looking at it purely in a financial prospective.

I don't like moving, I don't like to have to be told I have to move, so I own my home. The first house we had was very cheap, our starter home. We ended up living there for 19 years, there was no way we could pay rent that would beat what we paid for all those years. Rent would have been a few times higher. Then we moved to this permanent home which is more expensive. We chose comfort over money.
Escapevelocity
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Re: Renting for life - a bad idea?

Post by Escapevelocity »

fredflinstone wrote: Tue Mar 09, 2021 10:48 am
If even renting does not give you enough flexibility there is another option you may wish to consider: living out of AirBNBs full time. This is less costly than many people think and provides almost limitless flexibility.
Have you had any experience with this or know anyone that has? I'm retiring next year and considering selling my house and doing something like this for a year or two before deciding where to settle down.
Escapevelocity
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Re: Renting for life - a bad idea?

Post by Escapevelocity »

My opinion is that owning makes more sense if you're living in a detached single family house and planning to stay there for 5 years or longer.

Where I see renting as superior option is in urban apartment/condo formats especially in VHCOL areas.
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