[Felipe]

Hey friends, I have a question. I’m aways listening that is better to invest the money instead of buying a house because in the long run it will be worth much more.

In my head is like: yes, if I put the whole amount of the mortgage towards low cost index funds, it will indeed be worth much more down in the road.

However, do we take in consideration that we still have to live somewhere? The cost of renting a house would certainly not let me put the whole value of the mortgage in investments. Specially that where I live right now is a hot spot for people to move from Florida, California, and other big cities, so housing cost in sky rocking.

How do we do the math to actually makes more sense to rent a house where you’re just investing the small difference every month if you choose to rent.

I hope that makes sense, I’m not making a statement that buying a house is better then renting, is just a legit question that I have in my mind.

Thank you all..

[Melissa]

First, you have to take a very clear look at your priories and decide if the math is really the most important thing. For some people home ownership is very important so even if the math doesn’t make the “most” sense it’s what will bring them joy and a sense of fulfillment. For others, home ownership is a stressor and would crest more worry and headaches. So first and foremost, what do you WANT to do?

If it’s 50/50 then from a math perspective I would factor in some numbers similar to what we do for rentals – add to your expected mortgage payment about a 5-10% amount for repairs/maintenance (lawn care, drippy faucets, etc) and at least about 5-10% capital expenditures (aka big ticket items like roof/boiler etc. while these costs won’t come up every month they will come up enough that you need to factor it into your monthly budget realistically on top of taxes, insurance (which go up).

In addition, make sure that on top of a down payment you have a pot of money in case of any hidden maintenance items that don’t come up in inspection. Yes, home ownership is more expensive than renting when you factor in all that but the trade off is the equity/net worth built.

[Dawn]

Some people do think renting is more financially advantageous than buying, but I think for most people, buying is better.

Otherwise, we wouldn’t have landlords buying up property for profit. I know my own rentals have catapulted me into FI. The areas it makes less sense to buy in are the very HCOL, but even then, it often works out better to buy over the long run as those homes appreciate, but that’s more of a gamble.

I know my own home is $1628/month. It would cost a minimum of $2800 to rent something similar. $502 of my payment goes to principal, so the interest, taxes, insurance are about $1126/month. It’s also appreciated about 300k since I bought it ten years ago. My downpayment was 30k, so that’s the amount I would have invested at the beginning if I hadn’t bought.

Rinse and repeat with a few rental properties, and I’m good to go with finances.

Suggested: I would like to keep our house as a rental property

[Linda]

I think what we talk a lot about on here is to not paying your low interest mortgage off early. Invest that money instead. You can make a case for renting over owning but owning a home is not just a financial decision, its a personal one.

We own a home because we love it and wanted a stable place to raise our kids. We enjoyed working on it and decorating it over the years. It is worth double the price we paid 17 years ago but it is a use asset for us not purchased as an investment.

I think the problem comes in when it is your only asset. You can’t eat your house. We purchased below what we could afford and continued to invest in our portfolio monthly. Our investment accounts enormously outperfomed the real estate over the last 17 years. Owning a home comes with a lot of hidden costs. Renting gives you flexibility which is important at different phases of your life.

I have read alot of comparisons on renting vs owning once you figure in ALL the costs. Its closer than you think and comes down to personal preference and doing it in a smart way which is much harder to do with the crazy market and interest rates. Interesting topic though with a lot of conflicting info and opinions.

[Scott]

When I buy a rental house, in rural Wisconsin (since every state and city are different), I aim for an 8% ROI plus appreciation (avg 2-3% or so). I figure my return on real estate is about the same as the long term return in the S&P 500 but real estate is more consistent and not as volatile.

Buying a house is definitely a good investment UNLESS you compare buying an expensive house compared to renting an inexpensive house or apartment. Then, in that comparison, renting is cheaper.

Also, check out: Anybody have any experience with house hacking a multi family building, saving, then keeping it as a rental?

[Philip]

The decision of renting vs buying, assuming you can afford either, is usually a lifestyle choice, not a financial one. Do you want to be tied down to a house, pay for your own repairs, or do you want to just make a call when things break, and pick up and go when the spirit moves you?

[Michael]

You have to run the numbers based on your actual costs. In my area, renting is considerably cheaper in the current market and rates on an equivalent property. Keep in mind, owning has substantial maintenance costs that are hard to predict and frequently overlooked.

There are a number of rent v buy calculators that will run the numbers and every market is different so a blanket statement isn’t accurate enough.

[Tony]

I’m surprised you’re hearing this – I’m not sure what you’re listening to but I’ve read and heard the overwhelming opposite examples in these groups, in that buying is almost always better than renting after a few years. This is also my own personal experience and that of my friends. Obviously, you have to be familiar with your housing market and do the rent vs own math to make sure it’s worth it. I just had a friend sell her condo in Boston after 5 years of ownership. After the sale, she cleared 217K. She also rented a room out in her condo, which covered 1/3 – 1/2 of her expenses.

This windfall is on top of the normal retirement contributions and investing she’s been doing. Compare this situation to a renter who lives in Boston and has decided to leave after 5 years. This renter is paying rent each month but is not building any sort of equity as a result of each payment. When the renter leaves in 5 years, they would have netted…nothing. And never had the opportunity to house hack to have a renter cover part of the living expense.

I also house hack a room in my 3BR, and in addition to gaining +/- 350K in equity since my purchase in 2015, I have a renter cover almost exactly one-half of my mortgage, insurance, and property tax (much of which is partially deductible on my taxes as an additional benefit).

I should also add that when I bought my place, my mortgage was $1150 and prevailing rents were probably $1400-1600 for a comparably sized house. Now my mortgage is $1450 (I refinanced to get a lower interest rate and shave 5 years off my mortgage), while prevailing rental rates for a similar 3BR house are now $2800-3200. But generally your mortgage payment is locked in while rents climb and climb and climb.

Don’t forget to take a look at: Any millennials here? I’m about to buy a house

[Carrie]

I think the difference is people might overbuy on their homes. Buy smaller and less than you need if payments are a concern. I don’t think there’s anything wrong with renting or buying if done correctly. It also depends on what you feel like dealing with, do you have roommates to cut the rent/mortgage payments down, how long you will be in that area, are you able to save up for a 20% down payment, etc

If you buy a fixer upper, can you afford to do the repairs to make it more up to date or comfortable?

[Larry]

In addition to what Scott states, if it’s a primary house you have the added benefit of tax free appreciation after only 2 years living in the house.

As with any investment you have to be mindful of the entry point – best to buy low and sell high.

[Ryan]

I don’t think buying a house makes mathematical sense most of the time.

And, you should buy a house. And, it’s ok/good to pay it off. Not everything is an equation.

[Tony]

I’ve found that those saying it’s cheaper to rent than to buy, or that you’ll simply invest the money and make more money, usually have faulty math. I.e. made up math.

“You don’t have to pay property taxes”. Trust me…my tenants are paying my property taxes. And my principal, interest, insurance, and maintenance repairs.

Explore these too: I am trying to evaluate if I can pay off my 15 yrs house loan any sooner without refinancing it

[Laura]

Renting doesn’t always make sense if you have kids and the landlord doesn’t renew the lease… uprooting kids and changing schools is a lot. Renting would be $1000 more a month vs our.

Mortgage. Not taking into account house maintenance, etc. We have a bunch of equity built up and we wouldn’t have made that much in VTI.

[Author]

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