Renting vs. Buying a home

[tvguy]

Uh no. The tenants are not paying for it. It's not "improving" it one bit, but fixing a problem. The shower needs to be torn out and rebuilt. And, I suppose in one sense, a shower that no longer leaks is an "improvement' over one that does, it adds nothing to the value of the property. Therefore, I cannot charge the tenant one penny more in rent. Moreover, because of the inconvenience of the repair and the time it takes, they get a rent concession. Are you a landlord? There are a ton of expenses that come up that *I* pay, and all it does it reduce my income for the year. I make less. In this case, a LOT less. If the repair never happened, I make MORE money. So, yes, it costs me. The tenant is neutral or even better off. Any other way of looking at it is silly.

Not silly at all. If the rent paid doesn't exceed landlord expenses, the landlord goes bankrupt. That's pretty basic math.
I am not a landlord, but I suspect landlords don't do it for charity...they do it because they can make money.

 

[longboard55]

Owning pays off big when you want to retire.

 

[tvguy]

Owning pays off big when you want to retire.

Worked great for my mom. Her house had been paid off for 25 years when she retired. In 27 years of retirement I think her cash out lay worked out to $90 a month for a gardener.......$800 a year for property taxes .....$10,000 for a roof, $1,000 a year for homeowners insurance, $7,500 for 3 repaints, $2,500 for a new water well pump and probably $5,000 in other odds and ends over the years. The works out to like $300 a month over 27 years. Cheaper than rent

 

[longboard55]

also when you pass and want to give something to your children, they get the house totally tax free at present day values, so if they sell it they keep every penny, no matter what the value changed over her lifetime

 

[neverlandsky]

We rented for 9 years. Owned for almost 7 years, kids were 4/6 to 10/12. We're back to renting again for almost 2 years now. By renting we have mobility. The teens seem to like renting better because it's a flat layout, there's a pool, and we have more free time. The decision to sell the house almost 2 years ago has also paid off with 3 job promotions less than 2 years, we're able to contribute a lot more towards retirement, and travel. In our experience, both renting and owning has their pros/cons and it truly depends on what life and career stage you're in.

 

[tvguy]

also when you pass and want to give something to your children, they get the house totally tax free at present day values, so if they sell it they keep every penny, no matter what the value changed over her lifetime

In my case, because I sold the house for less than listing price, within 3 months of my mom's passing, I not only had no tax liability, I could write off the difference between listing price and the sales price on my taxes. But I had to take the write off over 5 years.

 

[DLgal]

Not silly at all. If the rent paid doesn't exceed landlord expenses, the landlord goes bankrupt. That's pretty basic math.
I am not a landlord, but I suspect landlords don't do it for charity...they do it because they can make money.

A LOT of landlords barely break even. Many lose money. Not everyone is a professional landlord. Lots of people become landlords by circumstance. Many owe more than a house is worth and can't sell. Some are only moving temporarily and know they will be coming back to live in the house. There are lots of reasons people become landlords. A lot of military families are landlords and a lot of them make absolutely no profit from doing so. Plenty lose money every month.

 

[tvguy]

A LOT of landlords barely break even. Many lose money. Not everyone is a professional landlord. Lots of people become landlords by circumstance. Many owe more than a house is worth and can't sell. Some are only moving temporarily and know they will be coming back to live in the house. There are lots of reasons people become landlords. A lot of military families are landlords and a lot of them make absolutely no profit from doing so. Plenty lose money every month.

We inherited 2 houses, one from my MIL and one from my mom. We very briefly considered keeping each as a rental, but it just seemed like too much work and too big a chance of losing money.
We have a friend who is business manager for a couple who own several hundred apartment units. With that number of properties, he has a staff of 12 to run and fix them. He buys appliances in bulk, like 100 at a time. I think the last batch of refrigerators he bought cost him like $120 each. So he rarely fixes appliances since at his cost, it's cheaper to give a tenant a new one that call a service tech.

 

[Kathryn Merteuil]

It was kind of a thing where a house payment cost about the same as rent. If you plan on staying somewhere, buying makes sense.

 

[MillauFr]

I'm glad we bought 20 years ago. It was a stretch to pay $320k but now that the place is worth a million it seems like a bargain. With single family houses selling for upwards of $4.1m in our neighborhood and rapid price appreciation owning has been great.

 

[tvguy]

DH was in the military for a long time, so we never bought as we didn’t want to get stuck with a house if/when transferred. When he finally got out and we relocated to the place we wanted to live long-term, we bought because we saw a great deal. At the time I felt we were jumping in sooner than I’d like, but I’m glad we did because we couldn’t afford our house now, just 4 years later!

Housing wasn't included?
I married into an Air Force family. My wife grew up in base housing. As she put it, the exact same cinder block houses on 6 different Air Force bases in 3 different states. Same with her step sisters. Their husbands were all career Air Force. They never had to deal with finding a place to live until their husbands retired. Housing was one of the perks of the job.

 

[sonnyjane]

Housing wasn't included?
I married into an Air Force family. My wife grew up in base housing. As she put it, the exact same cinder block houses on 6 different Air Force bases in 3 different states. Same with her step sisters. Their husbands were all career Air Force. They never had to deal with finding a place to live until their husbands retired. Housing was one of the perks of the job.

You can choose to live on base for free, or live off base and be paid a housing allowance. We really didn’t want to live on base, surrounded by the military 24/7, so we always chose to live off base.

 

[DLgal]

You can choose to live on base for free, or live off base and be paid a housing allowance. We really didn’t want to live on base, surrounded by the military 24/7, so we always chose to live off base.

Same. 17 years in, never lived on base. Interestingly, these days, EVERYONE gets a housing allowance. But if you live on base, you are charged the entire allowance monthly paid directly to the housing contractor. Base housing is now privatized, which means people are getting a lot less for their money vs. finding a house in a surrounding town. I couldn't imagine paying $3760/month to live in a 30 year old house with no air conditioning on base. Ew.

 

[Skippy918]

Uh no. The tenants are not paying for it. It's not "improving" it one bit, but fixing a problem. The shower needs to be torn out and rebuilt. And, I suppose in one sense, a shower that no longer leaks is an "improvement' over one that does, it adds nothing to the value of the property. Therefore, I cannot charge the tenant one penny more in rent. Moreover, because of the inconvenience of the repair and the time it takes, they get a rent concession. Are you a landlord? There are a ton of expenses that come up that *I* pay, and all it does it reduce my income for the year. I make less. In this case, a LOT less. If the repair never happened, I make MORE money. So, yes, it costs me. The tenant is neutral or even better off. Any other way of looking at it is silly.

We are landlords too. We just had to get a new oven for one of the properties. At least all the expenses can be written off on our taxes.
The income stream from the rentals is not enough to live off of unless you have several properties. What we are building is equity. Our area has a booming real estate market so if and when we do sell, we will come out ahead.

 

[mnrose]

We are landlords too. We just had to get a new oven for one of the properties. At least all the expenses can be written off on our taxes.
The income stream from the rentals is not enough to live off of unless you have several properties. What we are building is equity. Our area has a booming real estate market so if and when we do sell, we will come out ahead.

We do own several. And, while not our only source of income, it is an important source. So, it bites when you have the huge repair bills. I don't mind the occasional "we need a new dishwasher" (or something like that) because it's generally less than one month's rent, but those big ones that chew up 1/3 (or more) of the year's revenue are an ouch. I do get that this is part of the deal when you own real estate, but it is also a reason that people choose to rent instead of buy. Not everyone has the savings or ready cash available to pay for large repairs. And, if you own real estate long enough, you WILL have a major repair/maintenance bill to pay.

 

[ronandannette]

In my case, because I sold the house for less than listing price, within 3 months of my mom's passing, I not only had no tax liability, I could write off the difference between listing price and the sales price on my taxes. But I had to take the write off over 5 years.

How is this possible? Why then doesn't everybody list their houses at some off-the-wall price just to build in a nice, fat tax deduction?

 

[MillauFr]

How is this possible? Why then doesn't everybody list their houses at some off-the-wall price just to build in a nice, fat tax deduction?

I would have listed the house for $10m if that was true. I don't believe it.

 

[tvguy]

How is this possible? Why then doesn't everybody list their houses at some off-the-wall price just to build in a nice, fat tax deduction?

In estate sales, value of the property is set at the value at the time of the death of the owner. That was my cost basis, determined by the appraisals I got immediately after my mother's death, which became the listing price. The offer I accepted was only 4% below listing/appraised price. Not my idea, my CPA pointed out in settling the estate that it was a normal, legal deduction. Just like if someone sells a house for less than they paid, that loss is fully deductible....unless it is a short sale, because then the lender is basically making the amount they forgive a gift to you.

 

[gillep]

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).

Exactly this, it is very area and time dependent. A lot of people say that if you don't stay in a house long term that you lose money, or that renting offers mobility but we had the opposite experiences.

We bought our first townhouse during the downturn, we unexpectedly had to sell 2 years later due to a job relocation, after all the fees we came out exactly even on that townhouse, we didn't make a dime but we didn't lose anything either.

We built our next house and stayed in it about 4 years, again our move was unexpected, after all fees were paid we came out of it with just under 75K to use towards our next home.

We waited a little longer to purchase our third home as we weren't sure where to buy, and ended up losing about 4K when we had to break our lease when we found a home we wanted to buy and didn't want to lose it. We aren't moving yet, but we purchased in 2015 and if we sold today after all fees etc. we would walk away with over $300K from the sale of this house (this is more than the cost of each of our first two homes). That said we are in San Jose which last I heard was the hottest housing market in the country, real estate agents drive by every week with flyers trying to get people to sell their homes. Could we hit another downturn and lose all of that, of course, but we have had no regrets with our purchases even though we haven't lived in any of them for even 5 years.

 

[Mackenzie Click-Mickelson]

Exactly this, it is very area and time dependent. A lot of people say that if you don't stay in a house long term that you lose money, or that renting offers mobility but we had the opposite experiences.

We bought our first townhouse during the downturn, we unexpectedly had to sell 2 years later due to a job relocation, after all the fees we came out exactly even on that townhouse, we didn't make a dime but we didn't lose anything either.

We built our next house and stayed in it about 4 years, again our move was unexpected, after all fees were paid we came out of it with just under 75K to use towards our next home.

We waited a little longer to purchase our third home as we weren't sure where to buy, and ended up losing about 4K when we had to break our lease when we found a home we wanted to buy and didn't want to lose it. We aren't moving yet, but we purchased in 2015 and if we sold today after all fees etc. we would walk away with over $300K from the sale of this house (this is more than the cost of each of our first two homes). That said we are in San Jose which last I heard was the hottest housing market in the country, real estate agents drive by every week with flyers trying to get people to sell their homes. Could we hit another downturn and lose all of that, of course, but we have had no regrets with our purchases even though we haven't lived in any of them for even 5 years.

It's funny you mention that because just 2 days ago I happened to notice that our rental house we lived in from Feb 2013-Sep 2014 was on the market and was just listed on 3/9/18. Prior to us moving in the homeowners inbetween the last renter and us attempted to put it on the market for $165,500k. At that time, like I mentioned it was a buyer's market, and they weren't getting enough interest so they took it off the market and put it out to rent again which we scooped right up. That house now, with very minor adjustments such as painting cabinets white and putting granite in the kitchen and that's about it, has a pending contract for $215k (it's now a seller's market). Truly that house isn't worth that but the market and the area allows for a higher price point than previous. Even considering the higher interest rate I'm sure the homeowners paid back in 2006 they are coming out with a nice profit (now they have owned the home for nearly 12 years at this point but still..timing and all).