Is the delta between renting & owning now so high that it really just makes sense to rent?
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Anonymous
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If we were in our early 30s now like we were when we bought our home (2013), we would probably take a hard look at renting something much smaller and not buying. With the headache that can be home ownership, limits on SALT deductions, interest rates, and the fact that you couldn't buy what we currently own for less that ~1.5M, I am just not seeing it.
I have several friends that are 5-7 years behind us with young families and they are stuck in their starter homes. You can always seek out more income, but that also comes at the cost of your time. I am glad we bought our "forever" home and renovated it to our liking. Totally luck on our part we did. |
Anonymous
| We moved cross country and planned to buy (currently renting) but we've lost so many houses to multiple offers. Prices just keep going up. I think we are giving up. |
Anonymous
Not really |
Anonymous
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I've done the calculation for a 1-bedroom condo in DC.
Total payment would be $2700 month to buy vs $2200 rent the same condo. I would also be 'out' $60k down payment, which is 20% and other fees it took to buy. The prices have been the same since 2008, so there won't be much appreciation. Might be $350k in 20 years depending on inflation, so really losing money. The interest deduction and upkeep should cancel each other out. The $2200 is increase for the upcoming year. I had a good deal paying just $1950. Now, $60k and the extra $6k a year invested for 20 years is about $800k. I also would have an option not to invest some months because of hardship. I would not have an option to not pay mortgage or HOA or taxes. I have an option to move to a cheaper place if rent gets too high. I'm renting until my investments are big enough that a $300k out of them won't be noticeable. Should be there soon. I already made the mistake of buying vs renting. Both places were for living though, but it just didn't work out well. |
Anonymous
Condos are terrible examples to use. They have very different appreciations and market fundamentals than SFHs. The 1-bedroom condo is the worst of all. In your particular situation it seems like you can justify renting over owning if your option is restricted to a 1-bedroom condo vs apartment. A family is a different story. |
Anonymous
This is so crazy to me. All throughout my 20s (and my sister did into her 30s) I lived with roommates in not the most desirable areas (but safe) in order to save for a home. It paid off. I had friends paying maybe 1700-2500 for a one bedroom apartment (10+ years ago) whereas I was paying $500-$800 for a room in a shared apartment. Was it ideal? No, but I saved and invested that money over 10+ years and it paid off. When I moved in with my now husband we lived in a tiny apartment together and saved a ton of money. He also commented on how good of a communicator I was and living with a variety of people helps you learn how to better communicate and handle things when living with other people. I have cousins in their 20s and they all live alone or in these shared luxury apartments! One cousin lives with 2 friends in this crazy gorgeous apartment in Manhattan and her rent for her one bedroom in the 3 bedroom apartment is around what OP pays for a 1 bedroom! She saves no money (she is not in finance or tech) and her parents subsidize her income. They are doing her no favors. There is no understanding to live a little bit more away in a not fancy apartment and save/ invest your money for the future. |
Anonymous
Where in MA can you rent a $2million dollar home for $6k a month?! |
Anonymous
| A point that hasn’t been made is that it will likely be possible to refinance at a lower in a couple years. But renting seems like the winner financially right now. |
Anonymous
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it is hard to compare renting to owning.
Why? The house I own is way better than anything I would rent. |
Anonymous
In Potomac and Bethesda 2 million dollar homes rent for about that. It is pretty common. |
Anonymous
Very true. But it is also a gamble. If you take out a 7.5% mortgage, it may not drop below 6% for many years to come. Which is possible. It's hard to predict where we're going with interest rates. Who knows. No one knows. History does suggest we should see sub 5% and reverting to a more average 4% but there have also been other spells where interest rates were high for a long, long time. A big part of what's happening is prices are still stubbornly high and that is because of a significant to severe undersupply of housing partly caused by few people giving up low mortgage rates and because of an underbuilding in the 2010s that is catching up with population growth. But we may be reaching the highest pricing point with current interest rates and I see signs of that happening. In short, if rates continue to climb, prices will have to soften a bit. But if they stay around 7-8%, prices are not dropping. Interestingly enough, on the college board they're talking about the demographic time bomb, which is that the number of college age kids is going to start falling, sharply, in the next few years and how that impacts admissions rates. One can also speculate how that will affect the real estate market ten years afterwards! But that means looking at the market 10-15 years from now and we have to live between now and then. |
Anonymous
The question was about putting 20% down, which is what most people do here, given the prices. Of course the more cash you can put down, the less the interest rates matter and the calculation changes. I have recently considered renting out my house and renting another one. I found several houses that I could easily afford to rent for 7-8k a month, which were all in about the 2-2.2mil range if they sold now. I could put at max 500k down if I wanted to buy any of these houses and my monthly payment would be almost double the rent and going almost entirely toward interest, none of which I personally can deduct. Everyone should do this math before they make a decision in either direction. People tend to look down on renting but sometimes it just makes way more sense, particularly if one does not expect to stay put for life. With the current rates you are building almost no equity in the first years and it takes significant appreciation to offset any transaction and maintenance costs of a 5-10 year ownership. |
Anonymous
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One the reasons CA real estate is so distorted is Prop 13: values / taxes don't get re-assessed unless a change of ownership happens. So there is a huge incentive to retain properties and rent them out, creating the gap you see in the original post. Similarly, the seemingly expensive house selling today will eventually be a deal poperty tax wise if held long enough.
A horrible distortion that only exacerbates an already tough housing market. |
Anonymous
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OP of the thread here.
I'd love to see some examples. I found these two in Somerset (CCMD): Rental: 4BR/3BA, 2600 ft, listed for 160 days; $5500/month https://www.zillow.com/homedetails/5512-Uppingham-St-Chevy-Chase-MD-20815/37174432_zpid/ For sale: $1.6m (price will escalate IMHO...just posted yesterdat), 4BR/3B, 2400 sq feet; PITI with 20% down: $10K/month https://www.zillow.com/homedetails/5401-Uppingham-St-Chevy-Chase-MD-20815/37174470_zpid/ Delta (ie, ownership premium): $4500/month or $54,000 per year Imagine having not only your $320000 down payment in a monet market account making 5.3% risk free, but also saving an additional $54000 per year. Renting in Somerset is a no-brainer. |
Anonymous
Not just in Somerset, pretty much anywhere in the DMV right now. People who push for buying in most cases did not actually crunch the numbers. It is pretty eye opening when you do that. |