[El]

Keep renting vs buying post FI. The age old debate but with a twist. Currently FI and renting, where I live the price of rent doesn’t really go up and landlord hasnt increased rent in 6 years.

I factored in this amount to my FI calculations.

We may move in a few years and considering renting vs buying the next place.

Can you guys make sure I’m seeing this correctly?

Im going to keep the math simple.

If I rent a place for $1k/mo that’s $12k/yr so using the 4% rule I would need to have $300k.

Not taking into account taxes, maintenance etc, would buying a house worth $300k be the same thing?

I would have $300k less but I wouldn’t need to cash flow the $12k/year so in that case at least it would be a wash?

Again not getting into mortgage rate, taxes, opportunity cost etc

[Bill]

Keep in mind that the 4% calculation is more like a worst case scenario.

The most likely outcome is that you spend 4% for those 30 years and end up with more money than you started with.

[Frank]

No, not exactly, because the 4% in the rule is not a “return on investment”. But perhaps close enough for what you are thinking about.

The real issue often comes down to transaction costs involving real estate, which are very high relative to other investments.

Unless you are planning on staying in the new house for a decade or more, it still may make sense to rent.

And you should definitely account for taxes, insurance and maintenance.

Even though our mortgage is paid off, our cost of ownership continues to inflate over time and mandates that we hold a reserve to cover the carrying costs.

Paradoxically, the more your home increases in value, the more those carrying costs are going to be.

[Rick]

Yes, because it’s essentially one question not a comparison.
$1k/month would be covered by $300k via 4% rule regardless of calling it rent or mortgage or dance party expense.

Or viewed another way $300k dedicated to covering rent or covering a mortgage or monthly dance parities is the same.

[Scott]

I think the way to look at it the all-in costs of renting (which include that you have some income on the $300k in investments in your example) vs the all-in cost of ownership (which would mean you presumably put the $300k in the house so it’s not generating income).

You probably have to make a lot of SWAG assumptions on inflation etc.

Plus the non financial considerations (ie if your landlord sells the house, do you really want to move when you are well into your 70s?)

How important the price appreciation is a variable however (and some friends and I have been chatting on own vs rent as we retire and contemplate downsizing).

There is a question of how important, exactly, the appreciation is.

While if I were in accumulating mode then yes, home price appreciation is part of the strategy however if as the saying goes ‘if you have won the accumulation game,you can stop playing’.

I used to be somewhat of an absolutist that you should own when you retire but while I think that is a use case I’m beginning to be more open that renting is a bit more viable as you age.

[Michael]

You have to make your comparison for total costs. Over the long haul, all of those costs are subject to inflationary pressures so the 4% rule is a good manner of managing that risk.

At the end of the day, housing is an expense that never really ends whether you rent or buy.

[Author]

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