Houses - Rent or Buy?
Hey all.
I'm keen to get some opinions from you guys who own/rent property on the pro's/cons of renting vs buying.
My girlfriend and I are looking to get a new place (currently living in a home owned by the family, but we need to find a new place shortly). And we're not sure whether to rent or buy.
It seems to me that renting is more popular elsewhere in the world.
The big problem with buying is that most mortgages I've found want at least a 10% deposit. Even then, I'm looking at an interest rate of 7% or so which seems insane. With a 20%+ deposit, rates come down to about 4%.
Average house prices in the 10 mile radius where I live are about £120k for a decent 1 bed apartment, £160-180k for a 2 bed. With that in mind, I'm gonna need at least £12k up front for a deposit.
Also, I have no idea what my situation will be in a few years time, I may have kids and need a bigger place, I might want to move to another country, so if I've bought a house, is it difficult to get out of the mortgage or move house so early on in the term?
I really don't know much about this so it'd be good to get some insight from you guys on what you think are the pros/cons, or even better what your experiences are with renting vs buying.
Thanks
I'm keen to get some opinions from you guys who own/rent property on the pro's/cons of renting vs buying.
My girlfriend and I are looking to get a new place (currently living in a home owned by the family, but we need to find a new place shortly). And we're not sure whether to rent or buy.
It seems to me that renting is more popular elsewhere in the world.
The big problem with buying is that most mortgages I've found want at least a 10% deposit. Even then, I'm looking at an interest rate of 7% or so which seems insane. With a 20%+ deposit, rates come down to about 4%.
Average house prices in the 10 mile radius where I live are about £120k for a decent 1 bed apartment, £160-180k for a 2 bed. With that in mind, I'm gonna need at least £12k up front for a deposit.
Also, I have no idea what my situation will be in a few years time, I may have kids and need a bigger place, I might want to move to another country, so if I've bought a house, is it difficult to get out of the mortgage or move house so early on in the term?
I really don't know much about this so it'd be good to get some insight from you guys on what you think are the pros/cons, or even better what your experiences are with renting vs buying.
Thanks
Replies
So back in 2007 went and bought a house. never regretted it all.
Things do come up owning a home that renting you wouldnt normally have to deal with.
Anything from plumbing expenses, pretty much just having to fix things that break.
We refinanced and got a interest rate of 4% or little less here in the USA.
Mortgage = the bank owns your house until you've paid it off + interest in 20 years.
Yep i agree with that 100%
Try and get low interest rate and pay it off less than 15 years.
What i am doing now.
My wife and i are hoping for 10 years it can be paid off.
Come to Texas the housing market prices are good and you can get a huge house.
California is a hard market to make enough to have a nice house from what i heard.
We were out visting someone people we know in Oceanside Calif a while back.
There house cost triple the cost of our house in TX and much smaller.
I'm not sure about uk market, if you have mind set to flip the house and make quick profit like good old days,,,,,forget about it. but if you planed to stay there for long time...it is not a bad idea.
in state, people are saying market almost bottomed out,,, NO. nightmare just begun and it will stay for decades to come. trust me i am paying the price right now.
I'm enjoying it, so far.
I got sick of renting, and figured for close to the same amount each month, it could be put towards owning the place. And I'd be able to do whatever the fuck I wanted.
I was wrong. It's a LOT more expensive. And my girlfriend moved in, so I still can't do whatever I want. :poly124:
Still pretty cool, though.
Over the years the value sky rocketed almost 2x what we paid for it and now its hovering just above what we paid. I really like our place, its quite, cheap to heat and cool. It's the first place I've ever lived that has in floor heating, so amazingly efficient and its awesome always having warm floors. I don't have to take care of the outside and we have enough open bedrooms that we could have another kid, but we probably won't...
If we had sold during the boom we would of bought a castle and would now be severely underwater, so I'm glad we didn't. But as it is prices could dip a little lower and we could even sell at a loss and I would still say it was well worth it not to deal with all the BS we had to deal with when renting.
I guess if you bought a house full in cash without a mortgage or anything, then maybe it would actually make economical sense. But who does that?
Think of all the money you're "throwing away" by buying:
- Maintenance
- Insurance
- Property tax (although it could be argued that property tax is factored into people's rent, it's still an additional cost on top of the mortgage payment)
- Interest on the mortgage
- Depreciation (even ignoring the turbulent housing market, which one shouldn't, you're still committing to a ~20 year mortgage, and will be selling a 20-year-old home if you ever want to sell it)
- etc etc...
I think it's pretty clear that if you do the math, it just doesn't pay to "own" (read: be enslaved to the bank for 20 years) these days.
Yeah, if it were sane circumstances, if house prices were within sane levels, and you got a situation where the opportunity cost of getting a mortgage is only slightly higher than rent, I guess it would make sense. But I don't see how anyone can find such a deal these days.
If you can't afford a 10% deposit what makes you think you can afford a mortgage? The deposit is supposed to show that you can reliably save money on your current income. If you don't have enough disposable income to save money then you can't afford a house.
Not sure about the UK, but I think laws around here dictate you effectively need to live in the house for the first 3 years before you can sell/rent out.
I hate to hijack, but does anyone of you guys actually have experience of renting out your house from abroad? I'm looking into getting work outside of the country, but we don't want to sell our house.
My wife cousin is looking for a new apartment and 2 bedroom ones $900 to 1,100 range.
That is alot here in TX i think, we live 1 hr north of Dallas close to Plano area.
House payment can be low as $1300 a month or little less.
I would rather own for just $400 or so more a month than renting.
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Occupancy takes a dip, your rent goes up.
Some fudge bag screws up a unit, your rent goes up.
Someone sues the company, your rent goes up.
They want new landscaping on a property across town, your rent goes up.
The name of the game is to hike your rent every time you sign a lease. They hike it just enough to make paying it cheaper than moving. They work hard to fine tune the amount it costs to screw you over each time you sign.
When you sign a 20yr mortgage, you know what your first payment will be and your last and there will be a last payment unlike renting.
In 30-40 years when you retire do you want to be paying rent, or own your home and do something else with that money?
With all that said, it makes sense not to tie yourself down if you're in this line of work or any line of work that is this unstable.
I think it is just gonna come down to what we can afford. I mean, I see the benefits of owning and gaining some equity in property but the biggest thing will be finding the deposit.
Right now, if we put £15k down on a place worth £150k, the mortgage payments look like they'd be about 7-800 a month. Rent on a similar property would be about 700 p/m which is in our budget. Problem is, that 700 is available now, whereas 15k is most certainly not. So I guess we could buy in 2 years if we saved that 700 a month but if we rented, we could go now.
Im leaning toward renting. In my job, I'm also at the lower end of the ladder salary wise so if I get any increases, I suppose I could start saving while renting with a view to buying in a few years when Im more likely to know my long term plans.
It seems the general consensus here is buying is a better idea if possible but when future plans are uncertain, rent until you know what you're doing. Which is likely what I will do.
Thanks again.
I don't want any long term commitment to tie me down to any particular part of the country.
There is certainly a segment of the population that should be renting. The housing bubble showed the US that not everyone needs to be trying to buy a house. If you live in a high priced area and don't have a great paying job, if you're prone to moving a lot or if you have zero desire to make homes repairs, you should stay a renter. While I believe that buying a house is ultimately a good investment, I think it's a real disservice that renting has become some sort of taboo, as if everyone would love to own, but some people just can't.
The best advice I ever got was to be really, brutally honest about what you can afford. Not what you can scrape up if you're only eating bologna, but what you can comfortably afford and what you need house-wise. So many people buy more house than they need for more than they can afford. Set realistic goals and you're less likely to have issues in the long run.
My wife and I currently own two homes - one she bought when she was single (actually right as we started dating) and one that we bought together when we got married. The first house was great for a single person or even a couple without much stuff, but not for people looking to start a family. So we bought our current house when the market was so good for buyers (falling values mean low interest rates and a good price.) The problem is that good for buyers means bad for sellers, and we couldn't sell her first house without taking a huge loss. No one wants to throw away $20,000, so we're in a difficult spot.
For now, we're stuck with renting out the small house at a bit of a loss and just eating the difference to pay the mortgage while we hope property values rebound. We'd be happy just to break even, but we can't even do that. If she had rented a place earlier on rather than buying, we'd have more money coming in each month and we wouldn't have the hassle of dealing with two mortgages.
Things might be different in the UK as it's a smaller place/you aren't likely to move as far, but I would be very careful about buying a home as a US game developer. Unless I was in a market with a bunch of potential job opportunities or almost irreplaceable at an incredibly safe studio (Valve, Blizzard, etc), I wouldn't take the chance of getting stuck with a house I couldn't live in because the work has moved elsewhere. Justin's story is exactly why I'd think twice before signing a mortgage - if your situation isn't permanent, you don't want to buy.
I think times are definitely changing. My parents and their friends built their houses in their early twenties, i don't see that many people my age doing the same thing. I just really want to find an area i enjoy living be it where i grew up or somewhere totally different, so for now, ill rent for a bit.
Thanks to that, it's better to buy now than to rent because the rental properties are still sitting on mortgages that were priced too high. The houses on the market are going down because there is a huge surplus of homes out there and not enough people that can qualify for loans. Natural economic forces willing, prices will continue to fall (as they should with the glut of houses on the market) to rational levels that are in line with what they were in the decades prior, with respect to inflation of course.
If you have enough money saved up, a good income to debt ratio, and good credit history, it would be better to buy a house on the cheap that needs some cosmetic improvements (paint, trim, shingles, etc.) than to rent/buy a turn-key property. Sure you'll be paying taxes, but that's what keeps your streets and water/sewage system in good repair and rent accounts for that anyway. Things will break from time to time, but anything you update in the process will serve to improve the home's value to the market.
If you are going to stay settled in one particular area for a long time, it would benefit you to buy. If you expect to move frequently I'd suggest renting because with the saturated market, you'll end up sitting on a property you can't unload when the job market calls you elsewhere.
Right now buying would be the a wise option.
Houses are an investment, and the payment will stay the same for the rest of the time you own it. It builds equity. Renting does neither. Get locked in on a cheap house now
Buying is just too expensive. But I guess it depends where you're from - I saw houses in the US which were MUCH cheaper than in central Europe (although most of them didn't have the same quality - lots of wood and plaster instead of e.g. real brick). Then again I don't want a house to begin with. Not ready to put down roots just yet and I don't want an "anchor" to tie me down.
True. I just don't believe that's a possibility in today's environment. Let's put it simply:
OwnershipMonthly - RentingMonthly = NetLoss
If the cost per month to "own" a home is say $2,000, and the cost of rent is say $1,500, then you suffer a net loss of $500 a month. 500x12x30 (assuming we're comparing it to a 30 year mortgage) is $180,000 that you lose over the course of those 30 years. I actually think it'll be greater than that once you factor in maintenance and whatever expenses, but whatever.
So one has to make sure that the value of the house they'll own in 30 years is larger than that sum for it to even make sense considering. I just don't know if that's possible in today's environment.
Hell, if you can find a place to own where your opportunity cost per month (the amount you'd end up paying extra each month compared to renting) is very minor, then I guess it's worth it. Only if you're planning on spending the full 30 years there. Or at least a long enough period of time where selling and buying makes sense. If you're selling every year then that's really shooting yourself in the foot.
Which brings us to the next point:
Yup. I believe this is true and renders this whole discussion moot pretty much.
there's two things wrong with this.
Firstly your figures are made up and don't actually fit with reality at the moment. You can buy very cheap houses/apartments right now.
And you're missing the fact that as you pay it off you're buiding equity in your house. Which is especially effective at the moment since interest rates are so low.
Yeah, they're made up. But they're to illustrate the point that the monthly cost of owning a house will always be higher than the monthly cost of renting. But man, if you can find a place somewhere where it's the other way around, where it's more expensive to rent than it is to buy, then for sure get that on the spot.
100% of all places I've seen are the other way around though. The monthly cost of buying is simply higher than the monthly cost of renting.
This so called equity is the same as taking that $500 a month in difference I described and just putting it aside.
While you're paying off a mortgage you're building equity on a house.
While you're paying off rent you're saving money each month, which if you put aside and not spend it (big if, I know), then after those 30 years you should have a very considerable sum. Roughly ~180k in the bogus example I gave.
Same shit, different toilet.
12 cities: Where to rent vs. buy as listed below.
I see Los Angeles is Calif is a rent city for the numbers shown.
Pretty much it comes down to if you can afford it or not or want to.
http://money.cnn.com/galleries/2011/real_estate/1101/gallery.rent_or_buy/index.html
Of course, the downside (for some) is you have to live in middle America.
Ironically, the only people I've ever seen do that successfully are people saving for a down payment on a house. Also, it's not as simple as you make it out to be. The real issue is value vs inflation, and real estate has historically outpaced inflation by a couple of percentage points. This means the dollar you sink into your house will actually be worth more than the dollar in the bank 30 years from now, and makes for an excellent hedge against inflation.
EDIT - I'm not trying to make a case for buying vs renting. I'm sure if I were out on the left coast I'd be renting, as it's just way too costly to get into anything. I'm just trying to point out that sometimes the math does tilt towards buying, especially if you want to live in Mayberry.
Well a real example would be more convincing.
here's a house in santa cruz for rent:
http://sfbay.craigslist.org/scz/apa/2385688890.html
here's a house nearby for sale:
http://www.redfin.com/CA/Santa-Cruz/420-Western-Dr-95060/home/2129860
nearly a 1000 more per month for the rental depending on size of deposit and interest rates. Land tax would be about 700 a month.
Sometimes it is cheaper to rent. But it's not a hard rule that it's cheaper to rent.
Pretty much what you need to know in order to make that decision C22.
In the add: Renting might work for you if you are Not looking for a place to settle down, but need a place to crash, or stay for a while.
I wish you good luck in finding.
But the other way around isn't really a hard rule either. That renting is throwing your money away.
It all depends on the prices, where in the country it is, what kind of mortgage, interest, taxes, all sorts of crap. It could really come down either way.
In the particular area I'm at, I've done the math several times and it just doesn't make sense to mortgage.
That's why I would highly recommend buying now. You can pick up a foreclosure house, and the payments would probably be cheaper than an apartment right now. I honestly think we are at the start of an upswing, and 5-10 years from now, the house will likely double in value.
+1
just sell your house when you move.
it's not really that big of a commitment.
I've a friend who has sold his house every 3-4 years to move across the country for jobs. He's made huge profits, he's made losses... but the commitment is really up to you.
I'm now looking to rent a house, since I hate hate hate living in apartments.
I would say, if you feel that your job is stable, and that you're going to keep the home for at least 3 years, then it's a safe investment.
Additionally, make sure you get a good real estate agent that is looking out for your best interest, and not their profits. I've recently found out a whole slew of shady things that my real estate agency did in order to get us into our home. So much so that I'm forced to seek legal advise, and go from there.
I wish you the best of luck.
p.s. I miss doing my lawn.
Yeah it's definitely looking like it's gonna be renting. I definitely see the benefits of buying, and I would love to own a house, and one day I will for sure. But I really can't guarantee my situation will be the same in 3 years, and it almost definitely will not be. I'll likely (hopefully) be in a better paying job, possibly with kids on the way, and possibly (also likely given the location of studios in my line of work) in another part of the country or even the world.
I've looked into a few mortgage options and it looks like it's costly to get out of mortgages within the first three years, so as many of you have said, it does come down to my long term plans.
One thing I've wondered though, while I understand you own the house once you have paid it off... surely that equity is kinda moot in the sense that you'd still need a house. I mean, yes you have an asset worth say £200k, but if you sold it, you'd need another house, presumably for the same sort of money... unless house prices have dropped in which case you'd have made a loss anyway.
I can see it being a benefit when one is older with kids, for the obvious reasons like inheritance, and also if you'd bought a family home when the kids were young and then wanna downsize when the kids leave home, sell up, buy a smaller place and reap the difference. I guess it all comes down to the stability thing again, if you're staying put, buy, otherwise rent.
They'll make more money working with you to exit your mortgage than they will taking it and trying to sell it. Thanks to the massive amount of people who have been through that process its now not as painful as it was.
Banks almost always go for the option that hurts them the least. They aren't going to come to you and offer that deal and sometimes you have to strong arm them into doing it but it can be done and some banks are easier to work with than others.
Back when prices where in free fall I talked to my bank (BECU) about what happens when the mortgage goes upside down, what happens if we lose our jobs or what if we have to move and they where really open to working with us. They've always been an awesome level headed bank that never got caught up in the financial crisis BS so they've continued to be a strong bank with deep pockets.
Normally you have to meet certain conditions before they even consider letting you out, like loosing your job... which seems to be the biggest fear in this thread.
Also if you wait too long to get comfortable with the idea of buying instead of renting, you could miss the bottom and end up missing a chance to pick up and lock in a really great deal. Sure the financial crisis was a bad deal for anyone who bought at the peak but it seems like a huge reset button was hit for the younger generations.
Now typically, people go with a bigger home, so yeah, I buy a house at $175k, and I won't see anything extra in my bank account. BUT, I didn't have to save that extra $50k, because it came from the equity in my house. If I went to a smaller home (because the kids will be moved out), I WOULD be banking that extra money.
I can easily swing a down payment, maybe I'll look into it within the year.
Oh...oh hell if it were only that easy. It really is that big of a commitment.
The past is moot in this case.
What matters now is our current economy, and it's not a sellers market at all.
I'd rather walk away with nothing than negative.
True. But, without knowing where the market is going, or having enough faith in your current situation to own said home for 4+ years... it would be a foolish move. Trust me.
Also purchasing land/housing is a long term investment, its not for someone who may need to move in 6 months. Its also not(currently) a game for people looking to turn a profit in 3 years, but when you look long term, say 15 years. historically housing has been a very good investment regardless of market fluctuation.
Bottom line, if you have real stability in your life, it is an excellent time to buy property, because of how low the prices currently are.
Now, just in real life terms, I pay the same on my mortgage for a 2000 sq foot 4 bedroom house as I did for a 1200sq foot 2 bedroom condo with asshole neighbors. The value of my house has gone down very slightly in the last 2 years, so I would lose a small amount if I were to sell it tomorrow, however, nothing near what I would be out renting for the last 2+ years(my house is worth 2K less, and I would have spent 20K in renting). This is all just the automatic assessment shit though(for tax purposes), it has not been properly assessed, we've remodeled the basement and have done a lot of landscaping work, so in reality our house has gained value. If its a +/- gain vs how much money we put in I dont know, long term we almost certainly will come out ahead on the work we're doing, short term we would lose money.
If I sell my house in 10 years and only manage to break even, IE: the value of my house only goes up enough to cover the costs associated with selling it, I would still be better off than renting.
Your math is just hilariously bad here, renting x30 years means you'll be out 540,000 total with absolutely nothing to show for it. Even if you're out that same cost on a mortgage, atleast you OWN your house at the end of it.
Not to mention that generally, you can get a nicer place for the same or less cost by owning than renting.
Extremely common, next time do 5 minutes of research and you'll see.