Rent vs. Buy

[NotCranky]

There have been a few threads lately where rent vs. buy has been discussed. I always see PITI, maintenance,Mello Roos(mellow ruse as I like to call it), opportunity costs, etc. When do you rent Vs. own type piggs start to consider principal paydown?

Obviously depreciation is a bigger concern currently. However, with the price tags on the houses we discuss around here and even for the median SFR, the monthly principal pay-down is significant, starting at payment one.

What about the other financial factors usually part of a rent vs. buy discussion? For instance, fixing the cost of shelter and having the possibility of paying it off as compared to needed to pay future inflated rents?
Obviously I am thinking long term. Maybe that is just out the window in this day and age?

In any case, Alex Angel and I would like to know ;). I am going to take the little Rusticos out for half of the day so I can’t respond anytime soon. Thanks in advance for any contribution.

[Raybyrnes]

Rustico

I always consider paydown on a home when I run my numbers. But to try and keep things apples to apples I go back to more of an interest only model. Therefore I turn the House as a capital cost into shelter as an operational cost. Additionally, the interest rate environment that we are currently in make it less opportunistic IMO to pay down the mortgage.

With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. I also do not confront the difficulty of transaction costs which I typically either marginalize in the models that I use or include tranaction costs in the capital costs.

What I do find tough about renting is that there are things that I would like to chage about the place and I am reluctant to put money into something that has 0 return. Therefore you have to accept a “make do” mentality. From that standpoint there is definitely some psychological value to owning and controlling your environment. But this only becomes a factor as the rent buy speads get closer together. Right now they are still pretty far apart.

[Raybyrnes]

Rustico

I always consider paydown on a home when I run my numbers. But to try and keep things apples to apples I go back to more of an interest only model. Therefore I turn the House as a capital cost into shelter as an operational cost. Additionally, the interest rate environment that we are currently in make it less opportunistic IMO to pay down the mortgage.

With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. I also do not confront the difficulty of transaction costs which I typically either marginalize in the models that I use or include tranaction costs in the capital costs.

What I do find tough about renting is that there are things that I would like to chage about the place and I am reluctant to put money into something that has 0 return. Therefore you have to accept a “make do” mentality. From that standpoint there is definitely some psychological value to owning and controlling your environment. But this only becomes a factor as the rent buy speads get closer together. Right now they are still pretty far apart.

[Raybyrnes]

Rustico

I always consider paydown on a home when I run my numbers. But to try and keep things apples to apples I go back to more of an interest only model. Therefore I turn the House as a capital cost into shelter as an operational cost. Additionally, the interest rate environment that we are currently in make it less opportunistic IMO to pay down the mortgage.

With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. I also do not confront the difficulty of transaction costs which I typically either marginalize in the models that I use or include tranaction costs in the capital costs.

What I do find tough about renting is that there are things that I would like to chage about the place and I am reluctant to put money into something that has 0 return. Therefore you have to accept a “make do” mentality. From that standpoint there is definitely some psychological value to owning and controlling your environment. But this only becomes a factor as the rent buy speads get closer together. Right now they are still pretty far apart.

[Raybyrnes]

Rustico

I always consider paydown on a home when I run my numbers. But to try and keep things apples to apples I go back to more of an interest only model. Therefore I turn the House as a capital cost into shelter as an operational cost. Additionally, the interest rate environment that we are currently in make it less opportunistic IMO to pay down the mortgage.

With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. I also do not confront the difficulty of transaction costs which I typically either marginalize in the models that I use or include tranaction costs in the capital costs.

What I do find tough about renting is that there are things that I would like to chage about the place and I am reluctant to put money into something that has 0 return. Therefore you have to accept a “make do” mentality. From that standpoint there is definitely some psychological value to owning and controlling your environment. But this only becomes a factor as the rent buy speads get closer together. Right now they are still pretty far apart.

[Raybyrnes]

Rustico

I always consider paydown on a home when I run my numbers. But to try and keep things apples to apples I go back to more of an interest only model. Therefore I turn the House as a capital cost into shelter as an operational cost. Additionally, the interest rate environment that we are currently in make it less opportunistic IMO to pay down the mortgage.

With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. I also do not confront the difficulty of transaction costs which I typically either marginalize in the models that I use or include tranaction costs in the capital costs.

What I do find tough about renting is that there are things that I would like to chage about the place and I am reluctant to put money into something that has 0 return. Therefore you have to accept a “make do” mentality. From that standpoint there is definitely some psychological value to owning and controlling your environment. But this only becomes a factor as the rent buy speads get closer together. Right now they are still pretty far apart.

[sd_t2]

But also… don’t underestimate the effects of entropy – flooring and carpets do wear out and you’re on the hook for upgrading them.

My $0.02

[sd_t2]

But also… don’t underestimate the effects of entropy – flooring and carpets do wear out and you’re on the hook for upgrading them.

My $0.02

[sd_t2]

But also… don’t underestimate the effects of entropy – flooring and carpets do wear out and you’re on the hook for upgrading them.

My $0.02

[sd_t2]

But also… don’t underestimate the effects of entropy – flooring and carpets do wear out and you’re on the hook for upgrading them.

My $0.02

[sd_t2]

But also… don’t underestimate the effects of entropy – flooring and carpets do wear out and you’re on the hook for upgrading them.

My $0.02

[NotCranky]

“With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. ”

I think it is more appropriate to use historical data regarding rent inflation going at least 30 years back. I personally never raised rent on a mediocre tenant let alone an excellent one, like I am sure you are.I know many landlords are like this.
I have a friend who was renting on a 1 bedroom on Cable in O.B. for $65 in 1990 when he finally decided to buy because his landlord was in a coma and going to pass on.Going rent would have been $375 or so. I imagine that to be around $700 rental now. His mortgage, PITI, on his house in Clairmont is about 1/2 going renta and he had to watch his vlaue go from 162 to 110k shortly after buying.This is after refinancing ot a 15 year after acouple of years in the place too. Five years is just too short of a time frame when standard home loans are 30 years and we live for about 50 to 70 years after entering the housing market in one form or another, 30 or more of which could reasonably be done mortgage and rent free if one eventually buys vs. renting and investing.Yes, I know there are other expenses to ownership. If you say 1% for maintenance mine is about 7.5K annually at current valuations, insurance 1k, taxes 4k, at full valuation 8k if someone were to buy it today. That is a little over 1.5k worst case scenario for a house that would rent for 2.8- 3k per month.
In any case, I was trying to put the emphasis on long term thinking with my post because, aside from flukes like the recent boom, that is really how RE has worked to personal financial benefit. If it ever works again I would guess that this should also be the way.

I think,after considering the discussions here, that owning and actually paying off shelter, after finding a reasonable entry time vs. renting an equvalent property and investing is too close to call, generally speaking, to make it reasonable for many people to forgo ownership and all its potential satisfactions.Again, I am taking the long term position.I know you have examples of shorter term stituations that have played out as a clear winner for moving equity around. Nothing wrong with that. There are short term examples for flipping multiple houses and eating tons of aquistion, holding and sale costs and still making tons of money too.

[NotCranky]

“With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. ”

I think it is more appropriate to use historical data regarding rent inflation going at least 30 years back. I personally never raised rent on a mediocre tenant let alone an excellent one, like I am sure you are.I know many landlords are like this.
I have a friend who was renting on a 1 bedroom on Cable in O.B. for $65 in 1990 when he finally decided to buy because his landlord was in a coma and going to pass on.Going rent would have been $375 or so. I imagine that to be around $700 rental now. His mortgage, PITI, on his house in Clairmont is about 1/2 going renta and he had to watch his vlaue go from 162 to 110k shortly after buying.This is after refinancing ot a 15 year after acouple of years in the place too. Five years is just too short of a time frame when standard home loans are 30 years and we live for about 50 to 70 years after entering the housing market in one form or another, 30 or more of which could reasonably be done mortgage and rent free if one eventually buys vs. renting and investing.Yes, I know there are other expenses to ownership. If you say 1% for maintenance mine is about 7.5K annually at current valuations, insurance 1k, taxes 4k, at full valuation 8k if someone were to buy it today. That is a little over 1.5k worst case scenario for a house that would rent for 2.8- 3k per month.
In any case, I was trying to put the emphasis on long term thinking with my post because, aside from flukes like the recent boom, that is really how RE has worked to personal financial benefit. If it ever works again I would guess that this should also be the way.

I think,after considering the discussions here, that owning and actually paying off shelter, after finding a reasonable entry time vs. renting an equvalent property and investing is too close to call, generally speaking, to make it reasonable for many people to forgo ownership and all its potential satisfactions.Again, I am taking the long term position.I know you have examples of shorter term stituations that have played out as a clear winner for moving equity around. Nothing wrong with that. There are short term examples for flipping multiple houses and eating tons of aquistion, holding and sale costs and still making tons of money too.

[NotCranky]

“With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. ”

I think it is more appropriate to use historical data regarding rent inflation going at least 30 years back. I personally never raised rent on a mediocre tenant let alone an excellent one, like I am sure you are.I know many landlords are like this.
I have a friend who was renting on a 1 bedroom on Cable in O.B. for $65 in 1990 when he finally decided to buy because his landlord was in a coma and going to pass on.Going rent would have been $375 or so. I imagine that to be around $700 rental now. His mortgage, PITI, on his house in Clairmont is about 1/2 going renta and he had to watch his vlaue go from 162 to 110k shortly after buying.This is after refinancing ot a 15 year after acouple of years in the place too. Five years is just too short of a time frame when standard home loans are 30 years and we live for about 50 to 70 years after entering the housing market in one form or another, 30 or more of which could reasonably be done mortgage and rent free if one eventually buys vs. renting and investing.Yes, I know there are other expenses to ownership. If you say 1% for maintenance mine is about 7.5K annually at current valuations, insurance 1k, taxes 4k, at full valuation 8k if someone were to buy it today. That is a little over 1.5k worst case scenario for a house that would rent for 2.8- 3k per month.
In any case, I was trying to put the emphasis on long term thinking with my post because, aside from flukes like the recent boom, that is really how RE has worked to personal financial benefit. If it ever works again I would guess that this should also be the way.

I think,after considering the discussions here, that owning and actually paying off shelter, after finding a reasonable entry time vs. renting an equvalent property and investing is too close to call, generally speaking, to make it reasonable for many people to forgo ownership and all its potential satisfactions.Again, I am taking the long term position.I know you have examples of shorter term stituations that have played out as a clear winner for moving equity around. Nothing wrong with that. There are short term examples for flipping multiple houses and eating tons of aquistion, holding and sale costs and still making tons of money too.

[NotCranky]

“With respect to rising rents I personally am not seeing it. I have lived in the same apartment for 5 years and have not seen a rent increase. ”

I think it is more appropriate to use historical data regarding rent inflation going at least 30 years back. I personally never raised rent on a mediocre tenant let alone an excellent one, like I am sure you are.I know many landlords are like this.
I have a friend who was renting on a 1 bedroom on Cable in O.B. for $65 in 1990 when he finally decided to buy because his landlord was in a coma and going to pass on.Going rent would have been $375 or so. I imagine that to be around $700 rental now. His mortgage, PITI, on his house in Clairmont is about 1/2 going renta and he had to watch his vlaue go from 162 to 110k shortly after buying.This is after refinancing ot a 15 year after acouple of years in the place too. Five years is just too short of a time frame when standard home loans are 30 years and we live for about 50 to 70 years after entering the housing market in one form or another, 30 or more of which could reasonably be done mortgage and rent free if one eventually buys vs. renting and investing.Yes, I know there are other expenses to ownership. If you say 1% for maintenance mine is about 7.5K annually at current valuations, insurance 1k, taxes 4k, at full valuation 8k if someone were to buy it today. That is a little over 1.5k worst case scenario for a house that would rent for 2.8- 3k per month.
In any case, I was trying to put the emphasis on long term thinking with my post because, aside from flukes like the recent boom, that is really how RE has worked to personal financial benefit. If it ever works again I would guess that this should also be the way.

I think,after considering the discussions here, that owning and actually paying off shelter, after finding a reasonable entry time vs. renting an equvalent property and investing is too close to call, generally speaking, to make it reasonable for many people to forgo ownership and all its potential satisfactions.Again, I am taking the long term position.I know you have examples of shorter term stituations that have played out as a clear winner for moving equity around. Nothing wrong with that. There are short term examples for flipping multiple houses and eating tons of aquistion, holding and sale costs and still making tons of money too.

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