By: Revanche

Home ownership vs Renting: no brainer?

June 6, 2013

This post about all the reasons a house is a terrible investment (via nicoleandmaggie) made me laugh a little. Most of these ring true as financial reasons my pocketbook doesn’t want a house just yet, even as we’re staring at homes in the area, and starting to save for a new down payment.

If it were a purely financial transaction, I’d really think about six more times about trying to buy a house given the real estate market here in the Bay Area. Everywhere I look: astronomical prices. Apparently this is the “Paradise Tax” according to @isobelcarr, but my heat-loving soul protests.

I grew up renting all our lives and I still think it was a relatively simple way to go considering my family didn’t have steady and at least a bit consistent income. They could manage rent but managing the costs of maintenance and ongoing property taxes probably wasn’t likely. So despite being good friends with people who were firm proponents of real estate as investments, I had trouble picking up that attitude.

I can’t think of my home as an investment, not the home that I live in.

It’s my home and retreat and I’d love it. But I wouldn’t be so enamored as to think we’d ever resell at a high enough price to recoup: down payment, all fees associated with the hunt and the purchase, all the interest (yes, it may be tax deductible but still), any fees associated with refinancing as we’d probably do at least once, and of course, principal payments, insurance.

Given the high unlikelihood that a home would reliably turn a profit, it’s a purchase, in my opinion.  Unless it’s to be rented out, in which case you have a whole other set of calculations, but we’re talking about a home you live in for the sake of argument.

The case for buying?

There are certainly good reasons to buy. As a homebody, it’s the place I’d spend the most time. Owning would mean having general, if slightly limited, control over the routine monthly costs when I made the initial financial decisions: down payment, term of loan, interest rate (which is still ultimately determined by the market rate).

Assuming no HOA, I would have generally free rein to do with the house as I pleased, and most importantly, rescue any kind of dog I wanted. None of this stupid breedist crap you get from HOAs which assume that large dogs are dangerous when my experience shows that 80% of the small dogs owned by our neighbors are untrained, unsocialized panic or aggression-driven little craps that go for Doggle’s throat every time.

The case for renting?

There’s definitely something to be said for only being responsible for your own conduct in a rental, and not being responsible for routine or emergency maintenance.  Having to fix your own EVERYTHING is expensive and exhausting according to multiple homeowning friends. I’m not greatly familiar with the rules outside of CA but landlords must respond to problems within a reasonable period of time, and if we preferred to handle calling in for services ourselves, our landlords tended to be fine with our deducting the bill from our rent.

A good renting and credit record tends to buy you leniency and cooperation from a hands-off landlord too: they don’t mind accommodating requests that might be slightly out of the ordinary.

Having the flexibility to pack up and move with a month of notice may be important if you’re a university student, a young adult starting out with a new job, an adult looking for new jobs in a tight job market, a retiree who doesn’t like to be tied down to a mortgage or a single place … in other words, the flexibility of renting could be important to just about anyone. There’s something incredibly stressful about, say, getting a new mortgage and then unexpectedly getting laid off in a recession or bad job market, even with the best of emergency funds.

The variables…

Cost effectiveness of renting v buying:  Depending on where you are, the supply of rentals may be low, driving the cost of renting an equivalent home higher.  Or it may be high, in which case you have lease incentives, and more expansive options to lure you as a renter. Toss-up.

Your living space:  If you have a good and reasonable landlord, you may have relative freedom as to personalizing your home. Or not. Or your landlord may suck at doing repairs in a timely manner. Or you might, as a homeowner.

HOAs: There’s a bunch of stuff I hate about HOAs. It is nice not to have to worry about the long-term maintenance but I’m not sure it’s totally worth the trade-off. And we feel that much more tightly bound to our neighbors. The good ones, the horrible ones, the really horrible ones. It’s a crapshoot whether the people who run for a seat on the board will be competent as well.

Over to you: what are your priorities when it comes to your living arrangements?  Are you a renter, buyer, both? (neither…?) 

Confession: I always dreamed of buying a house outright with cash. I don’t think that’s going to happen soon. 

24 Responses to “Home ownership vs Renting: no brainer?”

  1. Lizzir says:

    My main reason to buy is paying a twenty year mortgage versus paying rent for ever. When I am sixty and gone I don’t want the worry, which also means I need less penaion

  2. Katie C. says:

    Small dogs are evil! My grandmother’s spoiled schnauzer is ruthless, and he’s ruined small dogs for me forever. Mostly though, I grew up with medium or large breed dogs, and meeting a dog who is the same size or smaller than my cat is just… wrong.

    We were renters up until a few months ago, but I think – apart from the horrible experience we had with our loud downstairs neighbor – apartment renting was so much better than renting a standalone house. In the house, we were responsible for all of the lawn maintenance, plus any maintenance considered “normal wear and tear.” When we moved in, there was a terrible flea infestation. The landlord did not compensate us for the supplies we bought or the time we spent eradicating this problem. There was only one problem big enough in the house that the landlord handled it, and that was roof damage during a hailstorm. Fortunately, home owner’s insurance covers these type of problems, so in the end, owning a home seems the better deal (assuming you plan to live in the same place for years and years).

    My opinion is biased because of how low our home prices are in East Tennessee. We’re in a 1,276 square foot house with a good size yard and CHA. The mortgage would be $341.33 with a 30 year mortgage. (This includes property taxes.) We were paying $550 for a 900 square foot home without heat! That’s a difference of $2,500 for the year! And because home prices are so low, it’s reasonable to attempt to pay with cash or at least have a sizable down payment.

    • Revanche says:

      My first dog was small so it helped me learn that they don’t have to be overbred, undertrained four-legged craps 🙂 That’s a good point abt the difference between apt and house renting – we did both and the house was more work.

  3. I’d buy the house in cash when I go to retire, but not before. Before, I’m happy being a renter. Doesn’t bother me the way it bothers others…

    • Revanche says:

      I do like this idea. If it weren’t for such high rents w/such picky landlords here, I would probably have a different perspective. It would make me feel more free (renting) to travel or to try to go on really long trips.

  4. Karen says:

    At my age , I’m not longer interested in being in an apartment (although this is not my first home). My home is slowly becoming the sanctuary I want.

    • Revanche says:

      Do you think you’ll stay there? I find I’m readjusting to aptlike life now but there are definitely things to be desired. Then again, I don’t have super crap neighbors right now so packages left for days wouldn’t be stolen. That’s a plus.

  5. Terry Pratt says:

    I regard buying a home as primarily a form of insurance, or, if you will, a defensive investment. I don’t see it as investing for appreciation – although that possibility exists – but as protection against rent inflation and displacement

  6. eemusings says:

    Homebody here too. Can’t imagine ever paying in cash given where we live and my industry. Buying a house is next on the goal list – probably equal parts emotional and financial.

  7. Sense says:

    Agreed, I dislike being locked into one place, AND having to deal with every little thing that goes wrong. Granted, nothing has broken in my current apartment for the past 5 years, but I just don’t want the responsibility! My plan is to pay cash for a house/apartment when I retire, so I have some peace of mind, though. For some reason I feel like I’ll want to have a stable, paid off base at that point in my life. Plus it gives me about 30 years to save! 🙂

    • Revanche says:

      I love the idea of saving for 30 yr and buying outright almost as much as I love the idea of enjoying the home for 30+ years while paying it off if at a reasonable interest rate. Though the amt of interest you pay over the time period is STAGGERING.

  8. Linda says:

    I’m currently an owner and have been an owner for about 15 years in total (12 years in this house, and three years before that in a condo.) I think you’ve summarized the variables pretty well. I don’t see that living in a mortgaged house provides me many benefits over renting, except for one: being able to do whatever the heck I want to the property. (Well, for the most part.) I live in a city neighborhood that predates HOAs so I don’t have to conform to certain standards around what type of storm door I can install, the color paint I can put on my trim, or the type of landscaping I need to do. 🙂

    I LOVE to garden and grow food, and I was never able to do that in an apartment or condo. I have no experience renting a house with a yard, but I’m assuming that it would be a challenge to find a rental property where I’d be allowed to plant an extensive veggie garden or keep chickens or bees. So for me, being a homeowner is mainly about maximum flexibility in setting up my “nest” the way I want.

    (Oh, and for yet another bad HOA story, see Crystal’s latest blog entry.:

    • Revanche says:

      We were able to plant gardens, though never tried for an extensive one, in our rental house but we had a very hands off landlord there. Sadly, PiC doesn’t want any part of keeping chickens so even if we had room and permission that’s not one project I can try 🙂
      Do you still love the neighborhood?

      • Linda says:

        The neighborhood has stayed pretty much the same over the past 12 years. I can’t say I ever “loved” this neighborhood, but it is convenient and I’ve found things to endear me to it. There is easy access to the two major expressways, two commuter train lines, an el line that runs 24/7, buses, and I’m pretty close to O’Hare. There is also access to big swathes of forest preserve not far away, which makes for nice walks with the dog and good for a big of foraging (technically, I’m not supposed to forage, but I only take a few ramps every couple years.) On the other hand, there are very few good restaurants and no cafes. It’s essentially a residential neighborhood with some light industry, but it has been stable, is convenient for work, and was affordable to me.

  9. StackingCash says:

    Homeowner here since 1999, mortgage paid off in 2008. My “rent” is now property taxes and insurance which is about $200 a month. Sounds great huh? Not so much. My neighborhood has been on the decline. Several renters have really brought the neighborhood down. I do believe my neighborhood is being populated by Section 8. Wished I had an HOA to crack down on bad neighbors. We are in the process of finding a new home in a very nice location. Lifestyle inflation…unfortunately…

    • Revanche says:

      I do like the idea of only paying taxes and insurance, though it’s a shame the neighborhood is declining. I would hesitate to equate the renters that bring the neighborhood down w/Section 8, though. It might be the case in this particular situation but I have trouble with the implication that the poor are naturally troublemakers as a lot of my family were once that poor, or poorer, and were not involved in drugs, ruckusing, or other drag-the-neighborhood down activities while I do see certain people and kids of every social strata, including the very rich, acting terribly. In fact, some of our neighbors in the HOA are kind of hideous people and they’re very flamboyantly upper middle class. Don’t know what they’re doing here but they are pretty entitled and aren’t people you’d want to be around.
      Don’t mean to lecture or come off as lecturing, of course. I hope your new home stays lovely!

  10. Tracy says:

    Best reason to buy a home vs. rent a home…

    Bought first home in 1986 for $79,900
    Now living in my fifth (owned) home and it is valued at $484,000. I will pay off the mortgage in 2 and 1/2 years.
    Couldn’t be happier with my choice!
    When I retire I can stay in the home for only the cost of property taxes and maintenance or I can sell it and invest the money for travelling.
    Doesn’t get much better than that!

  11. San Francisco…it’s hard to imagine owning a house there unless you’re extremely wealthy. Well…actually, that’s not true. When M’hijito was living there, it occurred to me that with my assets (which include a paid-off house in Arizona), I could afford a house in Oakland, just below Piedmont where the city isn’t too unsafe but is still not fabulous, if I could get into one that had a flat I could rent out. Rents were so high at the time (I’ve heard they’re even higher now!) that a renter would have paid the mortgage if I’d sold my house here and put all the proceeds down on a place there.

    Sure am glad I didn’t do that, because I would’ve been up the creek come the Recession.

    Owning a house free and clear kept a roof over my head after I lost my job. I could not have afforded rent payments at the outset, and as things got worse and worse, with more and more people thrown out of their homes and forced to rent, rental rates around here went into the stratosphere. If I’d been paying a mortgage, I would’ve lost my home and had to get rid of my two dogs. But even without them, I can’t imagine where I would have lived. I’d have been s.o.l.

    • Revanche says:

      Yeah, I’m very much not about buying IN the city, it’s astronomically expensive. And I remembered being glad that you owned your home by the time the recession hit and we were talking about being bag ladies together!

  12. I’ve always wanted a place of my own… It’s now a dream on hold. I’ll revisit the dream in a few years once my downpayment is saved and the health of my parents. I don’t care whether I rent or buy. I don’t intend to move outside my hometown so buying and “locking” me in doesn’t bother me. I do know I am a condo person more than a house person though. For me, a huge priority would be the neighbourhood. It should be safe, quiet with amenities close-by.

    • Revanche says:

      You’re never going to be allowed to leave your hometown, are you? 😉 Condos do have their high points.

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