The thread about whether it’s more advantageous to buy or rent one’s home (or condo, apartment, etc.) was long with lots of good reasoning on both sides. After reading about 60 posts I’d like to take a poll. Do you rent or own your home?
Wendy
So far, 3/4th report own, no mortgage. That may reflect the age of the people on this board.
Knowing my condo was paid off came in handy in early 2012, maybe 3-4 months after I retired.
I head people talking on my front porch. Looked through the peek hole, decided they didn’t look too threatening, so opened the door to see what they were up to.
One of the two guys said “you still in here?” Forget what I said. He said “the bank sent us to put you out”. I said “you have the wrong place. I paid off my mortgage years ago”. Then the guy looked at his paperwork, and discovered he was indeed at the wrong place. If I had not retired when I did, I would have been at work at that time. Probably would have come home to find the locks changed and all my stuff removed. Of course, if I sued the bank, they would have said “oh, that isn’t our fault. the guys were independent contractors. you have to sue them, and they don’t have two nickles to rub together”.
Steve…lucky beyond words at times
The most important part isn’t whether you “buy or rent”, it’s whether you’re buying at a price that gives you some prospect of an S&P 500-like return on your money. There’s always on opportunity cost in buying (i.e., your down payment could be invested elsewhere, often at a much higher rate of return.) And when you total up all the costs of home ownership that people often ignore, renting is often cheaper for the same square footage of space and amenities.
As Americans, we’re trained from birth to be believe that home ownership is the bedrock of wealth and that renters are second class citizens. That the influence of the Real Estate and Mortgage Banking lobby, just like the health insurance lobby would have you believe that US health care is the best in the world even though it’s killing us 3 years sooner as measured by average life expectancy.
Do the rent vs. buy calculation to inform your housing choices.
intercst
My condo does not have a huge return over time. I(t) lags the housing market locally. That said it costs less than owning a house. My income is up and down. I am better off at a lower cost. I can save more as well.
Home ownership has other impacts.
Residential stability among homeowners is related to improved life satisfaction, increased civic participation and improved educational outcomes for children, along with better physical and mental health.
Residential stability through homeownership is an important predictor of participating in local elections, though homeownership alone was also related to civic engagement, particularly in local elections and in community groups, after accounting for residential stability.
Homeownership is associated with increased residential stability, as renters move at about five times the rate of homeowners and stay in their residences on average one-quarter the duration of homeowners.
DB2
I’d be astonished if the rent vs. buy calculation showed that owning was better in an area with poor price appreciation. That would only be true if monthly rents for equalivent space and amenities were crazy high.
intercst
Except this area has an excellent price appreciation. I said condos here will not appreciate as fast as a house will. The area’s expectations are high.
I’m not sure that is the right yardstick. Shouldn’t owning be compared to renting? As posted earlier. When I moved in here, in 96, the two bedroom apartment I had in Kalamazoo cost me something like $350/month, with no garage or carport. A two bedroom apartment I looked at a couple years ago, with a two car garage, cost $3000/month. My condo has a one car garage, but also a full basement, which neither apartment had.
The local news reported the other day, that a 400sqft studio, in one of the swankier buildings in Detroit, costs $2400/month.
Steve
Well, a small group so far, I bumped it to 80% Ownership, that decision was made to pay it off as I retired in '02… We rented when first married, 3 places, first a bad landlord, blamed us for things we hadn’t done, and was small, kids were coming along, so a bigger place needed, and close to MIL childcare… I went overseas for a while, saved enough to take over a CalVet mortgage, a small 1,000 sf single car garage home, Young America, a good starter, but wall heater, un-landscaped yard, no deck, so we managed to do that, sold that 6 years later at a profit, moved where we are now, 1500 sf, small mortgage, but scary at the time, one or two rewrites to help the rates, or gather money for various remodels, and over the years, I/we, put in a lot of sweat equity into the property, separate workshop, concrete pad for RV trailer, a couple roofs, pavers, furnace upgrades, A/C addition, all windows replaced with double pane as well as old aluminum sliders replaced with Anderson French doors… A few $100K put into it, but it is our forever home, will be passed along to our son in the end game… But the thought at retirement was to free us from as many monthly payments as possible, as we do with most things…
It’s been Home to us, our kids, Grandkids at times, hosting family & friends for as long as needed if situations, like the firestorms of a few years ago happen… The trailer has water, electrics, sewage hookups, I added before pouring that slab, it’s been handy…
I think the rental folks are younger, more interest in investing that we had, there was neither the time or free cash to even consider investing back in the early days, and once the kids were out on their own, what additional funds we had from both of us working, went into travel, whether camping or overseas trips to more places then I ever expected to go… Glad we did it/them, the later Viking river cruises were the best, visiting some great places… Earlier were our own planned wanderings of Greece, Spain, London… memorable…
Onward!! Good topic, replies in the other thread…
I still have a small mortgage, I think it’ll end in a year or so. I’ve bought one house in my lifetime, took a 30-year at purchase (1997), then refinanced once about 14 years ago into a 4% 15-year mortgage, hence it ending in a year or so.
I have read about something called deed transfer fraud. I’m not sure if it’s really a problem, but if it is, here in Florida we have an excess of scamsters, so it would show up here. Basically, crooks troll the property records to find paid off houses, and then create fake documentation to transfer the deed or to put a mortgage on it. In general, if there is already a lien on the property, this isn’t easy to do. So that might be another advantage of still having a small mortgage on the house. Am I crazy to even think about this?
You shouldn’t be comparing a condo to a single family home with “excellent price appreciation”. You should be comparing it to an apartment with the same square footage and amenities.
I happened to see this home featured in the Hartford Courant last week in the fashionable Devonwood area of Farmington. (Presumably, Farmington is one of the higher appreciating towns in the Hartford area.)
3 Belgravia Ter, Farmington, CT 06032 | MLS# 24008640 | Redfin
Home was purchased for $695,000 on July 1, 2005 and is being sold for $979,000 in April 2024. And to make matters worse, the sellers have made significant updates and improvements to the home, reducing their already meager investment return.
Over the last 19 years, the S&P 500 with dividends reinvested has returned 512%, meaning that your $140,000, 20% down payment from 2005 would now be worth $717,000.
Perhaps you can point me to the “highly appreciating” areas around Hartford? I know that returns are pretty crappy in the inner city neighborhood I grew up in, two blocks from Trinity College in Hartford.
intercst
Why can’t you become “civically engaged” without the burden of the poor return of “home ownership”?
intercst
Your figures are very exact. The bad market in 2008 created that.
I bought in 1999. The appreciation now is 83% since then. It is not great.
Using figures for buying between 1995 and 2007 have been damning. Buying from 2009 forward has been much better.
Buying in 1999 was reasonable. The market was not yet nuts.
I am not going to get into dollar amounts.
That’s an understatement! It’s dismal. Heck, it barely even keeps up with inflation. The S&P500 return from 1999 is about 464%, see here (first google result that showed up).
The salient point is that single family homes in the US average a 4% return (meaning that about half the homes are getting less than 4%) while the stock market (S&P 500) has returned 10.7% over time – and I can capture that full 10.7% annual S&P 500 return, no matter where I live in the country, by purchasing a low-cost index fund. You need to get very lucky (or buy at the bottom of a housing market collapse) to get anything like an S&P 500 return on a personal residence. Understanding the difference between 4% and 10.7%, compounded over time, is the key to wealth – that and “Minimizing the Skim”.
intercst
That is why the investment was modest in the first place. It was a money saver in a few ways. My savings account and portfolio thank me. There is no mortgage at this point.
I am not using my home as my retirement account. Never have.
Yes! That’s what the “rent vs. buy” analysis does.
Check out the rent vs. buy analysis from when I moved to Houston from New York in 1981.
{{ When I moved to Houston from New York in 1981, I rented a 600 SF unit in a large garden apartment complex less than a mile from the Galleria Shopping Center for $400/month. The owner was in the process of turning half the property into condos. A 600 SF condo was selling for about $45,000 at the time. Mortgage interest rates were around 14% in 1981, but with itemized deductions and a high enough salary, after tax, the monthly cost of owning was about the same as renting.
Today (2021) that 600 SF Houston Galleria area condo sells for about $100,000 and the 600 SF apartment rents for $850/month. If you put the 20%, $9,000 down payment on the condo in an S&P500 index fund over the past 40 years, you’d have $693,000 today and the 1.6% dividend yield (about $11,000/yr) would more than cover the $850/month apartment rent. }}
intercst
Neither am I. My home is an EXPENSE, every month there are all sorts of things I have to pay for … expenses!
I just looked at zillow and it says my house is worth $1.4M right now (which seems absurd to me). It’s the same house that I bought for $234k 25+ years ago. And even with those absurd numbers, it’s only gone up by about 7% a year (not including ANY of the improvements I’ve made over the decades which would only reduce that average gain)! The S&P500 beat that handily over most 30 year periods. And in the right S&P500 fund, the expenses are only a few basis points.
You keep ignoring that they made the improvements to enjoy the home more . You can’t do that with a rental. I can’t put a price on “enjoying your home more”, but there’s a payment for that, just as there is for spending a week at DisneyWorld or buying a new car if you want to.
All this “well, the only thing that matters is ‘your meager investment return’.” No, the only thing that matters is: do you enjoy your life, and would improvements in your home contribute to that?
But you can!!! All you have to do is move into a nicer rental. People do it all the time. In fact, you can often improve your standard of living dramatically (add a pool and gym for example) with a relatively minor increase in rent. Adding a pool and gym to your own house would cost at least $100k, probably more at current prices.
Anyone that’s read @intercst stuff over the years knows that he retired at age 38. That led to his “enjoyment of life” for lots and lots of years. By his definition, of course. Had he been spending $1000+ a month extra for housing, he wouldn’t have invested that $1000+ into Dell/Pfizer/etc, and would have earned commensurately lower return (in $$$) and he probably would have had to work until 50 or even 55. That would have cut off 12 to 17 years of additional enjoyment of life for him!