Renting Forever - Never Buying A House

This is something I have been thinking of for a while and wanted to solidify some thoughts to start a new discussion. The premise of the discussion is renting forever.

Home ownership is something that has been said to me my entire life as a great thing. I grew up when home prices were going up 5% per year and then 10 to 20% per year and then 50% per year during the bubble. People talked about how great investments their homes were, and tax writeoffs and such.

Now that I am an adult and considering the possibility of home ownership, it seems almost ridiculous that anyone would want to own a home. I say this even excluding fluctuations in financial value of the home. Considering financial implications of downside, it makes the thought of homeownership seem ridiculous.

Reasons why I dont want to own a home:

1) Reduce embedded-ness to local municipality. If a new mayor comes in and changes things in a way I dont like, I can just move if I rent. Its much more difficult if you own a home. Traffic light cameras enter the city? Vote with my dollars and LEAVE. Pay the 1 month penalty to break the least and move a few miles to the next city. Write a letter to city hall with copies of my lease-termination letter and explain why I moved and will refuse to use businesses in their "police-state." Raise property taxes to support ridiculous projects or increased salary to councilmen? GOODBYE! By myself I look like a crazy person who will be ignored but imagine if 10 people moved. Or 100? Or 1000? Most people are sheep but I feel renting gives me leverage over the local government.

2) Reduce embedded-ness from state. If a new governor comes in and changes things I can leave. Its harder to find a new job in another state than simply commute a little further from a nearby city, but it's easier to do than selling a house/buying a new house and moving.

3) I dont want to take care of things. Mowing grass, fixing washer/drier, maintaining roof. No thanks. From everything I read, most new homeowners severely underestimate the costs of maintaining a home when running renting versus owning calculators. I have heard maintenance can run about 3% per year of the value of the home. The time-cost of taking care of things is also high. I could be using that time to get a promotion at work or get a second or third girlfriend on the side.

4) Eminent Domain. The chance of it happening is rare, but you dont really "own" the home. The government lets you live there and can take it from you at any time. I am moderately mentally ill and if I owned a home I would likely build an underground nuclear shelter and hide things in the walls and such. That's a lot of trouble to go through for something you cant really guarantee you will get to keep forever.

5) Property Taxes mean you never own the home. If you stop paying the taxes, the city takes the house from you. So really when people say "The house is paid off, I can retire" they mean "I have to pay property taxes forever." Considering taxes are only going up, its not something I want to lock myself into. 10 years into retirement, I dont want to sell my house to get a smaller place with less taxes. I realize taxes are built into rent prices, but with rent, I know I am going to be paying rent forever. With a house, you are still going to be paying forever.

6) Lack of flexibility in new jobs. Get a job offer in another state? Sure no problem, give me 9 months to sell my house and another 6 months to find a new house in the new area! Screw that! Rent and be flexible and able to move to where the money is!

7) You can rent a house if you want to live in a house. You dont only have to rent apartments or condos. All the arguments about it sucks to live in an apartment are negated if you rent a house.

8) Non-leveraged approach to investing. With a house, you have to put 20% down and have 5x leverage. If the house goes down, you are screwed. With an apartment, you can take the money you would have put as a downpayment, and invest it into REITs, Stocks, Bonds, etc in whatever risk-adjusted assset allocation you desire, without having to use leverage. Leverage is a terrible idea to use in investments. If you dont consider the house an investment (which you should NOT) then consider the lost opportunity cost of not being able to invest the downpayment into legitimate investments.

9) No Itemizing. For a lot of people, itemizing doesnt make sense unless you own a house. Thus by owning a house you are forced to itemize and forgo the $5k standard deduction. So if you are writing-off $10k in mortgage interest, you really only saved $5k additional write-offs.

10) You dont get to be an American hero on CNN.

11) Reduced Liability. If the girlscouts come to your door to sell you cookies and fall on your steps then they sue you for medical damages. WTF? I didnt invite you into my house. If you dont clean the ice on the sidewalk in front of your house and someone slips they sue you. REALLY? How do people fall for this nonsense. This is one of my biggest ones. Sure you have homeowners insurance, but this means that you MUST have home owners insurance forever. One might believe that after the mortgage is paid off, you can stop paying insurance and take the risk yourself. The bigger risk is NOT in a fire, but its in the gardener cutting his finger off on his pruning shears and suing you. Not a big deal in a lot of states but in Florida (where I would like to live), homeowners insurance is around 2% to 3% of the value of the home annually.

Biggest problems with not owning a home:

1) Reduced Creditor protection. In Florida, Texas, and a few other states, your home is 100% protected from creditors. Its nice to have $100k in cash in the bank, but I would rather have $90k in equity of my house and $10k in cash to look like a worse target for lawsuit.

The way I plan on mitigating that threat is to save any additional taxable money in tax-deferred annuities after maxing out 401k/IRA. Annuities in Florida are also 100% protected from creditors, and I get the advantage of deferring the federal taxes on earnings. A few companies such as USAA offer very low expense options with little downside for long-term investing. When I am ready to retire, perhaps at age 40 or 50, I can annuitize it and use the payouts for my rent.

2) Not being able to build that underground nuclear shelter I always wanted. I can use the extra savings to buy some land out in the sticks to build a cabin in and store my canned beans and ammo.

yawn. Just go to http://www.patrick.net. Useless post.

tripleB said: Now that I am an adultThat topic alone could fill a discussion.

There is nothing wrong with renting, I own multiple investment properties and rent my personal residents for many of the reasons above. I would agree for the most part that owning a home is a complete waste of money, but when I am older and ready to settle down I will be buying/building my own home, but for now I am very content with renting.

BBB Repost

tripleB said: I am moderately mentally ill and if I owned a home I would likely build an underground nuclear shelter and hide things in the walls and such.

2) Not being able to build that underground nuclear shelter I always wanted. I can use the extra savings to buy some land out in the sticks to build a cabin in and store my canned beans and ammo.

This reminds me of conversations with my "Boys" - i.e. my single guy friends. They wax poetically about how THEY are going to raise their kid and how they are going to educate their future hypothetical child.

I always ask one question that destroys their entire argument.

"What women do you have in mind to go along with these ideas?"

Could you possibly reduce your "embedded-ness" in FatWallet Finance?

tripleB said: patch96 said:
"What women do you have in mind to go along with these ideas?"

The same one that will let me pick the movie we watch every night, not complain when I stay out late with my friends, not argue about the prenup and have dinner waiting for me when I come from work.
This one seems to meet your needs, although probably wouldn't help with dinner.

Every week the ADD kicks in, coupled with schizo..trippleB is a goner.

op your same logic could also apply to renting a car as to buying one

SUCKISSTAPLES said: no one has mentioned inflation... Both of home prices and rents

I live in a neighborhood where most neighbors bought 30plus years ago. So they psid about $30 k for homes now worth $700k

Rents would be about $4000 a month now but their mortgage payments were about $200

When young people buy a home today they look at the mortgage payment vs comparable rent payment. If they buy with a fixed rate loan and dont pull cash out every few years, that mortgage gets easier to psy, while rent increases, due to inflation

Maintance costs of owning the home as well as insurance and property taxes also increase with respect to inflation. Currently in South Florida where I was looking at purchasing a home, the cost of home owners insurance and property tax of a small 1 family home was equal to the price I was paying to rent a one bedroom apartment. Comparatively the 1 family home is nicer than the 1 bedroom but not much bigger and not necessarily needed for myself.

So even if I bought a home, how do I know that in 30 years after the mortgage is all paid up, the cost of property tax, maintenance, and home owners insurance wont exceed that of apartment rent?

I think it's a toss up and depends a lot on the person. I know several people in their 30s who could by a house but choose to live in a smaller condo/apartment and just save extra. The extra savings are growing faster than the equity they would be gaining from the house. Though mortgages are cheap, they still aren't free (though you could come close to a 0% real after-tax rate). And as for appreciation, what is the real return going to be on that house when you sell it? Likely very low. When I forecasted all the cash flows and discount them back (including extra savings I could manage from renting instead of owning), renting a smaller apartment is the best in my situation. But then again, there are a lot of non-monetary factors going into that as well...not having a family, not wanting to deal with upkeep, needing to be able to move quickly...etc.

Like nearly everything in life, it's absolutely impossible to make blanket statements that apply to a large group of people. I don't think buying a cookie-cutter house on a postage stamp lot is a savvy investment, but that's just me. I'd rather buy good parcels of land or small commercial properties before I'd think about 'investing' in a home.

SUCKISSTAPLES said: no one has mentioned inflation... Both of home prices and rents

I live in a neighborhood where most neighbors bought 30plus years ago. So they psid about $30 k for homes now worth $700k

Rents would be about $4000 a month now but their mortgage payments were about $200

When young people buy a home today they look at the mortgage payment vs comparable rent payment. If they buy with a fixed rate loan and dont pull cash out every few years, that mortgage gets easier to psy, while rent increases, due to inflation

Look into rent stabilized apartments here in NYC.

tripleB said: 8) Non-leveraged approach to investing. With a house, you have to put 20% down and have 5x leverage. If the house goes down, you are screwed. With an apartment, you can take the money you would have put as a downpayment, and invest it into REITs, Stocks, Bonds, etc in whatever risk-adjusted assset allocation you desire, without having to use leverage. Leverage is a terrible idea to use in investments. If you dont consider the house an investment (which you should NOT) then consider the lost opportunity cost of not being able to invest the downpayment into legitimate investments.
I think this is an unappreciated aspect to the buy-vs-rent decision. Suppose you went to an investment advisor with $100K in assets and asked what you should invest in. They tell you to borrow another $100K on margin and bet it all on Direxion Daily Real Estate Bull 3x Shares (DRN). You would say they were completely insane! This is what most people do when they buy a house they can barely afford. They're taking a huge, expensive, and risky bet on the local housing market and doing it with most/all of their savings and at somewhere between 10:1 and 4:1 leverage.

The same advice about not betting too much on your company stock should ring true here also. If there's a local economic down turn in your town, you're both more likely to lose your job AND have all your equity wiped out as the housing market collapses and people try to leave for somewhere with jobs. Just look at Detroit.

Never mind that if you're actually good at managing your investments, the opportunity cost of tying up your 20% down payment these days (or more) represents a significant additional cost. Not only are the returns much more risky than a diversified portfolio (and you wouldn't normally be entirely in DRN), but historic real estate returns have been modest, maybe 6%. A well diversified portfolio will be less risky and have higher returns.

Is tribleB really SiS? If so, I will be highly disappointed in SiS. Speaking of that...

Sis: Can I have the user account DIDYOUSEARCH?

My 2 favorite things about buying as compared to renting:

1. I am not forced to move if my landlord decides to sell.
2. I am about to take my equity and buy a property for cash, and live rent and mortgage free for the next 30+ years.

cameron2003 said: My 2 favorite things about buying as compared to renting:

1. I am not forced to move if my landlord decides to sell.
2. I am about to take my equity and buy a property for cash, and live rent and mortgage free for the next 30+ years.

Lose your job, move in with a friend...foreclose on your home or maybe have to pay a months penalty for breaking your lease. The responsibility alone is too much for some people, I know I dont want it right now.

xerty said:
I think this is an unappreciated aspect to the buy-vs-rent decision. Suppose you went to an investment advisor with $100K in assets and asked what you should invest in. They tell you to borrow another $100K on margin and bet it all on Direxion Daily Real Estate Bull 3x Shares (DRN). You would say they were completely insane! This is what most people do when they buy a house they can barely afford. They're taking a huge, expensive, and risky bet on the local housing market and doing it with most/all of their savings and at somewhere between 10:1 and 4:1 leverage.

While I think you raise good points, I don't think the investment analogy is perfect, because you aren't making your mortgage payments with money that you otherwise would be investing - you are making them with money that would (mostly) be going to pay your rent if you hadn't bought a house. The only money that's relevant is the difference between the rent on a comparable place and your mortgage payment and down payment. The amount you would spend on renting a comparable place (assuming it's cheaper than buying) is sunk whether you rent or buy.

Again, how did I guess that this was a TripleB thread.......

geo123 said: bm97 said: I also included maintenance@1%, property tax @1.25%. I assumed 5.4% 30 yr loan).I can't imagine a situation under which your routine maintenance on a $550,000 house would average 1% per year. Unless you are planning on replacing the roof every other year or have MAJOR structural issues, I have no idea what you'd spend $5,500/year in maintenance on unless the house is in really, really, really poor shape, which would've been revealed during an inspection and you would've adjusted the price accordingly.

Where did the 5.4% 30 year loan come from? Aside from the fact that mortgage rates are typically calculated in 1/8 of a point increments, so you'd never have a 5.4% mortgage rate, 30 year fixed rates right now "at par" (which means that it doesn't cost you anything extra in discount points to get that rate and getting that rate doesn't give you a rebate) are around 4.875%-5% with very competitive closing costs. Penfed's 5/5 is at 4.5% and, assuming the worst case scenario for the interest rates, would have a breakeven period of about 10 years with a 30 year fixed. If you are calculating your rent vs. ownership cost over a 5 year period, it certainly doesn't make sense to assume that you'll have a 5.4% on a 30 year fixed.

If you run the calculations buying that house will cost approximately $34.5k per year. (this is after factoring in the mortgage interest tax deduction. I also included maintenance@1%, property tax @1.25%. I assumed 5.4% 30 yr loan). Equity buildup in the house is not considered a "cost" and is therefore not included in the $34.5kYour numbers are WAY off, even at 1%/year maintenance cost and 5.4% mortgage rate. At the 5.4% mortgage rate on an 80% LTV loan, over a 12 month period you'd pay $23,612 in interest. When you add the insane $5,500/year in maintenance costs that you've budgeted and $6,875/year in property taxes, you are looking at the grand total of $35,987. Where's the mortgage and property tax deduction?

That does not even compensate me for the risk I am assuming by owning a large asset with a probability of depreciation.Risk cuts both ways, you know. Of course you would have the risk associated with the value of a house potentially declining, just like you would have the risk associated with rents skyrocketing or with house values going up substantially. Home ownership is not and has never been a risk free proposition but neither is renting. To be sure, the nature of the risks is different but I certainly wouldn't present either one of the alternatives as a risk-free proposition.

Quick question: Didn't he also forget to take into consideration the equity he built in the house upon sale? i.e. If you have been paying mortgage for the last 5 years, even if the property value does not change, upon sale you would still be entitled to some of that equity (probably more than enough to cover your closing costs).
Am I mistaken?

http://www.amortization-calc.com/