Renting vs. Buying a home

[CdnCarrie]

You do, however, when we bought the house 20 years ago, property taxes were under $5000, they are now over $12,000 and increase every year.

I do what? Not sure what your question is?

I've been a property owner for 20 years and have never had anything but a modest rise in property taxes.
Yours are crazy! Wow. I would be voting some politicians out pretty quickly with jumps like that.

 

[GreatLakes]

There are advantages and disadvantages to both. I bought because I wanted to be putting money into an asset, not a never ending expense. I accepted the disadvantages that come with that decision.

 

[FINFAN]

both have plusses and minuses~Just my POV but paying off a home is by no means free living. For many the equity starts to get eaten up by repairs.
On ownership, as we get older as do the homes. Large ticket repairs can really hit hard (roof, windows, driveway replacement, bathroom, furnace, water heater, A/C) will happen and at a minimum and where I live those would total out at about $65,000 going with super basic replacement and only doing 1 bathroom, no kitchen, no re-carpet or hardwood re-sanding etc. The typical home here has 2.5 baths so add another $8-10 K if all need updating, again very basic minimum, no upgrading (and over 30 years, they prob will)so for us, a budget of $75-80 at a minimum over a typical 30 year mtg timeline ~ a more realistic one is $100-125, on top of all that interest and principal over 20-30 years
Our property taxes are over $800 a month and HO insurance another $115. Ao $915 in addition to the principle. It sucks. DH is the main paycheck, his career is here, we are stuck. Companies used to cover relo and then some, but not really any more. Consider your professions and if you will be moving a lot or simply want to move a lot. In those cases, renting is prob a less stress free way to go and also better finaincially if you look to move more than once in 7 years. I know many people sell by Owner but my DH would want a Pro so deduct 5.5-6% from the sale of our home or basically the neighborhood of 23-25K. Our taxes will continue to rise, but so will rent. However, with the new tax laws we can no longer write off as much as we used to so *technincally* we could rent a similar home to what we have for $100-300 less per month than our current out-go . We still have 8 years until we pay off.
Creature comforts of owning all 4 walls is great, but to me only if in a detached single family dwelling. Our first place was a Condo in an 8 unit building and I loved it, but we were on the second floor and our kitchen, bath, and MB were on the shared wall preventing windows and while we lucked out, some owners did complain of noise issues along common walls. We faced south and our view was a golf course so had great views with no maintenence, but only had a 1 car garage..winters were not fun, no basement meant tornadoes were also not fun and storage was at a minimum. The buildings have since enforced no grilling on upper floor decks (wood) so that would relly be irritating to us. The one car garage didn't leave room to have a grill in there and I am not one to roll it out onto my driveway, go up and down stairs to grill, lol. If I were to be in that situation again, we would rent, not own as selling it was challenging when we needed to back in the late 80's.

I personally would love the flexibility of renting, being able to change locations/states etc and experience all kinds of things, but by the time we can retire will prob be too old to have the energy to do it. At the same time I hate being 55 and my *fun money* budget is non-existant because home repairs are gobbling it up. Plus, my DH and I can't do the repairs ourselve's forever..we have had to hire out already for some things we would have been able to pull off 10 years ago to help cut costs. No time anymore, repairs don't care that winter is 6 months long, they hit when they hit. To be fair, college and care-taking of parents over time hit us hard so money we were putting away for "home repairs" and the down payment on a small retirement condo took a hit as well..life happens
We most likely will not be able to comfortably afford our current home in retirement even paid off, due to taxes, repairs, utilities etc and still be able to maintain our current lifestyle, manage costs to travel some, medical, you know..enjoy retirement. I *kind* of look at owning a home as paying for the right to do whatever you want while you live in it, but then you have to pay to make it "appeal to the masses" come time to sell or lose a boatload of equity. I have homes in our neighborhood that have dropped $30-125K "updating" their homes to sell them, and that is on top of decorating to their style thru the years ~which, is why many buy a home,lol, to reflect their personal style, not be cookie cutter etc. The irony.
I would love to live in other states in retirement, FL, AZ~ ideally I would love to have 5+ in each, and would have to rent because selling costs would kill us.

We will prb sell and rent so our kids don't have to worry about selling our house when we kick it~and be renters if we can still manage living on our own. I may just walk into the ocean until my hat floats if my circumstances are dire, lol. I hear Spain, the Dominican Republic are Ex-Pat friendly and reasonable for retiree's..might have to look into the possibilities.

OP..I would live where you have the least stress and if it is renting, save whatever $ per month you come out ahead vs ownership. If you purchase, do so that allows you to put a monthy savings into home repair and "escape fund" as I call it, lol....having that cushion either way will have you loving where you live a LOT more than check to check to say you "own"

 

[barkley]

even the air filter for the furnace was on them to replace).

that is a SMART move on your landlord's part-not timely replacing the filters can cause catastrophic and very costly damage. on this I speak from personal experience. we lived in a rental home for 10 months inbetween selling our last home and buying our current. about a month into renting we get a heat spell and the a/c is just not pushing out much if any cold air so we call the landlord who call an hvac company to take a look at it. come to find out the previous long term (2 or 3 years) tenants had NEVER replaced the filter (and landlord spaced on checking it when we moved in). that dirty, clogged up filter caused the entire duct system to collapse into itself (it looked like a soda straw when you try to drink a really thick shake through it). thousands upon thousands for the duct work replacements and the hvac company said the owner was going to be lucky to get just a fraction of the remaining normal lifetime on the main unit.

I don't understand how people who are renting think they aren't shelling out thousands for repairs and interest payments. The property owner builds money for repairs into the rent price, then sets it aside until those repairs are due

absolutely-and that's something I've had to drill into dd's head when different bond and levy issues come up on the local ballots to where she rents. so many of her renting peers just toss their ballots thinking it doesn't apply to them-well who do they think the landlord is going to pass on additional expenses to when the next rent increase occurs?

Wow, where do you live?? Ours are $3,300. We live outside a good sized city - 500,000 - so we pay only county taxes

and that's why it's so important to research an area before buying. we opted to buy further out from our jobs and commute with our last 2 homes b/c not only were the homes much less expensive but the tax rates were SO much lower. where we live now we are just outside the city limits so people within feet of each other and use the same city services/kids go to the same schools pay very different taxes/bonds/levies. it all adds up.

 

[Darcy03231]

Houses here average $350,000, but you pay $1000 a month for that average house in property taxes.

That about what property taxes run in our area. Condos run about $300-$400 a month.

DD and her fiancé rent a 2 bedroom/2 bath apartment in a nice development. It's about 1,200 sf. They have a pool, gym, dog park, trails, and a couple of rooms you can use (1st come, 1st serve) if you have larger parties/gatherings in the main building, She pays $1,100/mo and it includes her heat and hot water. They plan to buy down the road, but it will be for more space/privacy, not a cost savings.

 

[Mackenzie Click-Mickelson]

that is a SMART move on your landlord's part-not timely replacing the filters can cause catastrophic and very costly damage. on this I speak from personal experience. we lived in a rental home for 10 months inbetween selling our last home and buying our current. about a month into renting we get a heat spell and the a/c is just not pushing out much if any cold air so we call the landlord who call an hvac company to take a look at it. come to find out the previous long term (2 or 3 years) tenants had NEVER replaced the filter (and landlord spaced on checking it when we moved in). that dirty, clogged up filter caused the entire duct system to collapse into itself (it looked like a soda straw when you try to drink a really thick shake through it). thousands upon thousands for the duct work replacements and the hvac company said the owner was going to be lucky to get just a fraction of the remaining normal lifetime on the main unit.

Sorry if there was confusion. The replacement of the air filter (which was done every 3 months) was ONLY when I lived at apartment complexes. When I lived at the rental house the air filter was on us (they had a few left over so we only had to pay for several times). But you are right in that they took on a risk by having us, the tenant, replace the filter ourselves. Growing up it was my 'chore' so to speak at my dad's house to change the filter, when I lived at apartment complexes they changed the filter and so I was already used to that aspect of maintainence. But I would imagine that someone who has never had to deal or think about that could end up costing $$ in damage especially if they lived there long enough.

 

[soccerdad72]

That is true. Are capital gains taxable on every house sold in the USA? That would be a deterrent to sell for sure.

Not as long as you use the proceeds from the sale of one house for the purchase of your next house. There is also a one time exemption you can take for selling a home in which you are not buying anything with the proceeds.

 

[DisneyHardin]

Wow, some of your property taxes are so high. Our house is valued at about 200,000 and we pay about $1500 in taxes for the entire year!!!

 

[Mackenzie Click-Mickelson]

How were you even allowed to buy it? With all those things wrong, unless sold AS IS, you probably shouldn't have bought it. And if the inspector was a joke, make sure to make some phone calls and turn them in. Also, you did you have a 2nd inspector go through? Sounds like a pretty big uphill battle but hopefully everything happens one at a time and you can make it work.

All that said, I would love to own a home. I'm sick of renting, having neighbors above, below and to the sides. I'm sick of parking space games. I want a driveway where if someone parks in my driveway, well, let's just say you don't wanna park in my driveway, lol. The hard part here is... I'm looking to better my career options. This area is hospitals and food and not too much else. Needless to say I don't work in food and I'm not in the medical realm. Also, home prices keep going up, taxes are high and there's just no such thing as job security anymore. So trying to "settle" is somewhat apprehensive. Granted, I find the right house, I could maybe move away from living check to check, but who knows.

While it's not advisable, etc here in my area because of the market people are desperate to get a home that they sometimes will waive the inspection requirement and sometimes they just go by what the pictures are on the internet. The housing inventory for 3 beds 2 bath under $350k is in extreme demand.

 

[Mackenzie Click-Mickelson]

Thanks everyone! I completely agree that I would rather be putting the amount we pay in rent towards a mortgage, but I am scared we will never be able to afford a house! We are 20 somethings with student loans and a car payment and while we have money saved, it is definitely not a lot. Both rent (especially since we have a dog) and houses are pretty expensive where we live, so I guess I'll just have to see how it goes with the bank!

Are you close on paying off your car? I know when we were getting pre-approved and getting the mortgage loan if the car loan was going to be paid off in 6 months or less time frame they didn't include it on the debt to income ratio. Unfortunately at that time my husband had more than 6 months so it counted against us.

 

[Liberty Belle]

1. We were ready years before we bought, but were nervous about it. I wish we would have just done it earlier.
2. You probably will "qualify" for more than you can afford. Remember that. Decide yourselves how much you can afford BEFORE you get prequalified.
3. Home repairs are expensive. Make sure you get an inspector and make sure he/she is thorough. Try to have savings set aside.
4. Lowe's credit cards come in handy. They have no interest paying periods or you can choose to get a 5% discount.
5. Look at homes online (realtor.com) together and get a feel of what the important things are to you and your partner/spouse.

Good luck and have fun!

 

[DLgal]

Wow, some of your property taxes are so high. Our house is valued at about 200,000 and we pay about $1500 in taxes for the entire year!!!

Property taxes in our city are a flat 1.2% of assessed value for everyone. In addition, there are often Mello Roos taxes levied on new homes to help support local infrastructure. Our home in Orange County, CA has an assessed value of almost $1M. The owner paid around $12000 in property tax last year. She bought the house 2 years ago for $787000 so her property taxes have gone up along with the assessed value of the home. She's seen almost $200k in appreciation, though, so she's happy to pay the increased taxes.

 

[prprincess]

DH and I rented for about two years before we got married. Each year, the rent got higher and higher, and we felt that we weren't getting our money's worth. I also didn't like living in such close quarters with others, fighting to look for a parking space, etc. So a few months after we got married and things calmed down, we started looking for a home. I love it, of course, until things go wrong and you have to shell out a ton of cash to fix things instead of calling a landlord. But I do prefer having things like a garage, driveway, and a large backyard. With that being said, I feel like it's constant upkeep, but not necessarily bad.

And you'd be surprised at what you can get approved for. Despite being approved for a pretty high amount, we stuck to what we thought we could afford per month, and 10 years later, it's still manageable. Good luck!!

 

[smiths02]

True but u get nothing out of it
I will sell my house and gain the equity
Right now my house is worth close to $100,000 more than what i built it for 12 years ago
A washer, dryer fridge and dishwasher are nowhere close to that

We have a house that we rent out now that is worth less than it was 15 years ago (well, maybe about the same now-we may finally be able to get rid of it). We have spent several thousand on repairs over the years and are now forced to be landlords.
Anyhow, homes don't always go up in equity. We got caught in the housing bubble a bit. And about 4-5 years ago, we got caught in the government deciding that we have to pay flood insurance (the house has not flooded in the 60 years it has been there, we are not near a body of water, etc.). That flood insurance raises the mortgage payment another 5% a month, so it will make people less likely to buy our house.

So anyhow, having been through that, my conditions now are:
The market is favorable for buying (not at a big housing bubble)
We get a good mortgage (15 or 30 year fixed with a decent rate)
We plan on living in that area for several years
We have a down payment AND an emergency fund

 

[Mackenzie Click-Mickelson]

Wow, some of your property taxes are so high. Our house is valued at about 200,000 and we pay about $1500 in taxes for the entire year!!!

It can greatly depend on what you are also paying for as well.

Up until last year we paid roughly $250 each year just for a road improvement project (widening the road and installing roundabouts) that the city said was our neighborhood's responsibility. We moved in in 2014 so we only had to pay for several years worth but the road improvement project on your property taxes was for 15 years total and the closer you were to main road the higher you paid (some homes were paying over $500 just for the road project per year).

Here's what I pay for in my city:


Here's is what my in-laws pay for in the neighboring city:


Here is what my mom pays in a neighboring city:


Now we all live in the same County though my mom is under a different school district than myself and my in-laws. I haven't calculated theirs out but we pay just over 51% of our property tax straight to our assigned school district (includes all 3 items related to the school district).

We all have access to the public library system that my in-laws and mom pays for but my City has a privately funded library system thus we don't pay for it on our property tax. I do however have to pay for the public library system when the mill levy is increased for the County and a portion of that is to pay for it (which happened a few years ago).

Conversely while my husband and I don't pay for storm drainage on our property taxes we do pay for it on our monthly utility bill (that includes water, trash and sewer together) so even if you rented here in my city you'd still have to pay the just under $6 charge (at least it is for us) per month. And that ends up being a lot higher than what is being charged for storm drain coverage on property tax for my in-laws and mom.

My husband and I pay the most in property taxes in the end all things considered but our house is also appraised at more than my in-laws and my mom.

 

[DLgal]

Remember if you rent. Your rent has to cover the landlords mortgage. Your rent has to cover his property taxes. Your rent has to be enough to cover him fixing your washer and dryer and fridge and A/C and heater and roof. AND usually he is looking to get a little profit. There is no free lunch, the landlord is accepting the risk to make those repairs, but in the end the TENANT is always going to end up footing the bill, granted spread over many months rent.

Not all landlords have mortgages on their rental properties. Our landlord is a multi millionaire with several rental homes in both the Boston area and Southern CA. She buys the properties with cash in markets that are hot. She bought two of the same model house in our neighborhood brand new in 2015 for about $785,000 each. She rents them both out for $3250/month. BOTH those houses have appreciated rapidly, to the tune of being worth close to $1M each today. In fact, a house of the same model down the street just sold for $1.25M.

If she decided to sell them right now, she would net a profit of close to 30% in under three years on JUST the sale of the houses, (plus the rental income of $234,000, minus insuurance, property tax and HOA expenses). The only repair she has had with our home is a broken garbage disposal last month. Every day the value of our home goes up further. This lady is making money on this house (and probably all the others she owns) hand over fist with minimal work on her part since she buys mostly new homes to rent out. It is a great investment for her. We signed a 3 year lease with a locked in rental rate and just negotiated another 3 year lease with an increase of a whole $50/month. She is not interested in fleecing her tenants, she told me she wants us to enjoy living in her rental and stay as long as we want, and she wants to make that easy for us. She has had some tenants for over 20 years. The going rate for our home as a rental is currently $3750. In our city, approximately 55% of residents rent their homes. Using one of those Rent vs. Own calculators, it is 68% cheaper to rent in our city rather than own a home.

For perspective, our home is an 1800 SQ foot condo. Selling for $1M. It's insane.

 

[Mackenzie Click-Mickelson]

Not all landlords have mortgages on their rental properties.

I would agree with that. If you're a serious landlord operating basically as a rental management company you probably scooped up properties at the right time. You may have a mortgage but if you're got 20 properties in the area--that's doubtful.

I honestly don't think that it's just a 1 to 1 ratio. You usually charge what the market can bear. Sometimes that means you're making off like a bandit and sometimes that means you're only partially subsidizing your mortgage should you have one.

 

[gotomu212]

OP I would recommend that you talk with a local financial planner (NOT a realtor) about the rent versus own analysis in the area you are looking. Every area is different and based on local conditions one will make more financial sense than the other.

One common misconception (that was even listed on this thread) is that your rent is already covering the landlords mortgage so by default you must be paying more- most COMMETCIAL landlords are not paying traditional mortgages. They are paying interest only loans and continuously roll the principle over into new loans as they come due. Multi-family buildings are usually less expensive than a mortgage because the owner doesn’t own the buildings either. The landlord here needs you to cover interest, taxes, repairs, insurance on the structure, and a profit. That cost can be much lower than a traditional mortgage, personal homeowners insurance, and property taxes.

Property taxes are critical. Even after we own our house outright we will have a property tax bill of $1200\month, plus insurance, plus maintenance. For us anything we would rent under $2000 would actually save us real in hand cash. Make sure you look at the property taxes for any prospective home.

Home ownership also gets less attractive if you are not planning to stay in your home for a longer period. The first several years of a mortgage do not knock much off your principle at all (check a mortgage calculator on line to walk you through it). If you aren’t planning to stay long you’ll be surprised when you sell to find out that a huge majority of your original loan is still due and you were effectively renting from the bank for several years and were not building equity.

For SOME home ownership is a wise move and can act as a long term piggy bank for you. However this is no longer an absolute and housing is more of a “risk” (your house could appreciate or depreciate or only appecriate some ut. It cover the amount you paid in interest). Try to think throug how you plan to live and look at your local market since the decision in one area makes no sense in another.

 

[North of Mouse]

There are advantages and disadvantages to both. I bought because I wanted to be putting money into an asset, not a never ending expense. I accepted the disadvantages that come with that decision.

What are the disadvantages to owning your own home? We've been home owners for 50 years - different states - and have never seen any disadvantages.

When you rent, what you pay has a 'built in' maintenance amount in your monthly bill. No,it isn't stated like that, but it is. When the home needs appliances, new roof, etc. a smart landlord has $$'s put away (from your rent) that he uses for repairs, taxes etc. Trust me, they all know exactly what rents should be - with maintenance, taxes figured in. So, renters are not getting by without paying for these things, just don't have the 'bother' of them, but neither are you building any equity.

As for HOA, lived in one ONCE and done!!! Never again, with nit picking every spring on every tiny thing - and I mean tiny. We have certain covenants that prohibit unsightly things, but that's enough for us. We don't have to 'ask' if we can paint, change our landscapings, etc. They're protective, only.

 

[Mackenzie Click-Mickelson]

Home ownership also gets less attractive if you are not planning to stay in your home for a longer period. The first several years of a mortgage do not knock much off your principle at all (check a mortgage calculator on line to walk you through it). If you aren’t planning to stay long you’ll be surprised when you sell to find out that a huge majority of your original loan is still due and you were effectively renting from the bank for several years and were not building equity.

Even that though is area-specific.

If we were to sell our house now we could potentially have at least a $100k straight up profit. From the time we closed to now (as we just got our property tax docs a few weeks ago) we've appreciated around $62,000 then you add in what we've paid in mortgage in a total of 3 1/2 years. While we plan on staying long term in our home if the market slips back the other way or we have another crisis in the very near future we could stand to lose out more and more of that profit IF we had to sell given that we are still in the relatively early days of our mortgage.

Traditionally I would say it's usually more conservative but to your overall point though the housing market is a risk (when we bought our house it was still a buyer's market and now the last couple of years it's been a seller's market).