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Rent or buy?

SpartanWarrior77

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I rent where I live and rent out what I own. Like what @FlexpertHamilton said. That way I’m not tied down. The issue with that of course is that rents go up over time.

If I buy I buy in an affluent area in a midsize (for the area) house, where the values are most stable due to demand for the area.

Frankly before my daughters came to live with me a couple of years ago I did a roomshare situation. I liked that a lot. I had a bedroom with en suite and a garage for my car, big walk-in closet and private entrance from the pool. This in a 2M house in a prestigious area (for a fraction of the cost to own), and it was all bills paid.

I’d do it again in a heartbeat if I didn’t have a high schooler or all my stuff out here now.

I could leave for weeks without consequence, something you cannot do easily with a house & yard.
Hmm that's a cool idea about renting a room in a nice big house! Currently renting a 2 br with one roommate and pay less than $800 per month which is unheard of in my area.
 

SpartanWarrior77

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I hear ya on the frozen pipes. Been there, done that. 15K repair to re-pipe with PEX. Couple years ago we had -6 degree F weather and I left my gf to go to four of my vacant rentals to open the faucets to drip, open the cabinets under the sinks and make sure the heaters were on...

For some reason I thought you were in Cali but with frozen pipes now I know you're not. But I echo what you said, as a landlord with a portfolio of single family houses myself, being a landlord sucks. Homeownership seems great at first, but I remember all the people I ran into who sold and rented and were happier for it since they had to do NO maintenance. After 15 years of being a landlord, I understand where they are coming from. To top it off, I'd have left the state (one of the most expensive housing markets in the country, top 6) if I didn't have all this property here to manage. And before anyone says "just hire a pm!" they don't understand I'd be paying six figures for what is part time work with their ridiculous fees. But I did find a company that does it cheaply and am trying them out before hiring them for all of them and bouncing out of this state.
This is why they say to get into multifamily if you can I suppose. There's easier ways to manage it apparently. Im guessing because it would make sense to hire PM companies. For single fam homes, profit margins don't seem to make sense when it comes to PMs. I think there are also government incentives for owning multifam.
 

BeExcellent

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Some food for thought:

I wish (if wishes were horses, dreamers would ride), that I had held onto the residence I had with my first husband in TX. We bought in 2005 for 245K on his VA benefit, which meant only 10K down. That house is now worth 1M 18 years later. That is quadruple in value. Could I have expected that to occur in stocks? Only with far greater risk exposure. And I wouldn’t buy a primary residence for that price now. Nope. Ties up too much money.

I’ve done well with my strategy of buying in safe/stable working class areas in the small town Midwest. That is what I could afford to acquire rapidly, and at one time I had 54 units. I trimmed my portfolio starting in 2019 and now own 24 units. I bought for cash flow, not appreciation and although I had front end deferred maint to do on most, those are non-recurring costs and if I provide some nice amenities other rent houses don’t have (granite counters, central HVAC), then I get higher rents and better renters. Because appreciation has occurred on top of cash flow, my net worth is higher than it was at 54 units. I’m about 70% free & clear across the whole portfolio too and the portfolio runs in the black and has for years.

But it has not been for the faint of heart. I’ve dealt with every imaginable issue from the property manager embezzling to tenants dying in a unit, to criminal activity to evictions to the major and minor repairs that always come up. One reason I chose small towns is that I could get to know city and county officials there and they could understand the value responsible ownership confers to the area. I can pick up the phone and call the mayor, the prosecutor, the city attorney or the chief of police. They all know me. My renters know they all know me too, and that influence is helpful.

The other reason I do rental property is as a creative outlet. When I get ready to sell I design the property and create curb appeal and interior design that maxes the value and provides something beautiful for the new owners. That benefits everyone and ups property values for the area. I enjoy that. It’s like a full size art project.
 

EyeBRollin

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Some food for thought:

I wish (if wishes were horses, dreamers would ride), that I had held onto the residence I had with my first husband in TX. We bought in 2005 for 245K on his VA benefit, which meant only 10K down. That house is now worth 1M 18 years later. That is quadruple in value. Could I have expected that to occur in stocks? Only with far greater risk exposure. And I wouldn’t buy a primary residence for that price now. Nope. Ties up too much money.

I’ve done well with my strategy of buying in safe/stable working class areas in the small town Midwest. That is what I could afford to acquire rapidly, and at one time I had 54 units. I trimmed my portfolio starting in 2019 and now own 24 units. I bought for cash flow, not appreciation and although I had front end deferred maint to do on most, those are non-recurring costs and if I provide some nice amenities other rent houses don’t have (granite counters, central HVAC), then I get higher rents and better renters. Because appreciation has occurred on top of cash flow, my net worth is higher than it was at 54 units. I’m about 70% free & clear across the whole portfolio too and the portfolio runs in the black and has for years.

But it has not been for the faint of heart. I’ve dealt with every imaginable issue from the property manager embezzling to tenants dying in a unit, to criminal activity to evictions to the major and minor repairs that always come up. One reason I chose small towns is that I could get to know city and county officials there and they could understand the value responsible ownership confers to the area. I can pick up the phone and call the mayor, the prosecutor, the city attorney or the chief of police. They all know me. My renters know they all know me too, and that influence is helpful.

The other reason I do rental property is as a creative outlet. When I get ready to sell I design the property and create curb appeal and interior design that maxes the value and provides something beautiful for the new owners. That benefits everyone and ups property values for the area. I enjoy that. It’s like a full size art project.
Thanks for the insight!
 

sangheilios

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Here's my input on this.

The biggest issue with rent today is that the prices are comparable to a mortgage AND are subject to change. It's not unusual to see rent prices at 1k+ for some apartment complex that isn't even all that great either. A ton of places will label themselves as "luxury apartments" when they have amenities like a fenced in dog park, pool, etc. Since the pandemic I've also seen rent prices increase on a regular basis as well, which is the biggest issue you may have for your budget. You might be paying saying $1400 this year only for it to go up to $1500 next year, and I've heard of many people complaining about this issue in fact.

If you are planning on being in your area for the longer term buying a home is a good idea, especially if the rent prices are comparable to a mortgage or perhaps even more expensive. Granted, you have to factor in things like maintenance, taxes, etc. I believe the main benefits of owning though are that you are essentially "rent" controlled with your mortgage, assuming you get a fixed rate, and that you are building up equity over time. The reality is that most people are honestly terrible with saving and investing, so having a mortgage forces you to do this. The other benefit to consider is that the value of your home could and very likely will increase in value over time, or the very least maintain it's value.

The benefit of renting in my opinion is that you basically can come and go and you aren't responsible for anything. If you are young and single this can be a good thing if for some reason you don't like the area you are in, your job, etc. It provides a degree of flexibility that owning a home does not come with. If you own a home and want to move you have to have your home listed for sale and go through that entire process, which could possibly take months depending upon the market conditions of your area. Then you also have to pay realtor fees, etc.
 

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BeExcellent

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Where we are it is actually cheaper to rent than to buy. By over $1000 per month for the house we are in. That is 12K cheaper annually compared to the new homeowner up the street. Now if the owners of our house bought several years ago before the recent run up in prices, then they are still making $.

But someone buying (especially at current rising interest rates) would never make money now. They’d be upside down even with a fixed rate.

Add to that institutional investor loans always float and are never fixed. In a rising interest rate environment like we have now? That means over time your payment rises with the index your interest rate is indexed against. Bad idea to buy unless you can buy all cash. THAT is why Reits are buying. They need a place to park investor capital and aren’t paying high debt service but benefit from higher rent.

All RE markets are local. Know your market, know costs to buy & costs (market) to rent. Only then can you make a smart decision.
 

EyeBRollin

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The benefit of renting in my opinion is that you basically can come and go and you aren't responsible for anything. If you are young and single this can be a good thing if for some reason you don't like the area you are in, your job, etc. It provides a degree of flexibility that owning a home does not come with.
I should add here that remote working is the norm in some industries now so there is less overall relocation for work. That’s affecting the market quite a bit in some areas.

Here in Jersey homes have skyrocket simply because a lot of folks in NYC had less incentive to be there during covid-19, have moved, and now are remote or hybrid.
 

Bible_Belt

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The only wise financial decision I ever saw my dad make was his rental trailers. The lower the value of a rental unit, the higher the percentage return on investment. He bought a 10' x 50' mobile home for $800, pulled it home with a pickup truck, put about a thousand dollars more in it in repairs and then rented it for $175 a month...for 35 years. And of course there are tenant and maintenance headaches; that's why not everyone can do it. Trailers and trailer parks are associated with poverty, but from growing up with landlord parents, I still see them today as wise rental property investments. In today's money in my area, a $8-15k trailer still rents for $400-$600 per month. That roi beats the hell out of an 8% reit.
 

BeExcellent

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I should add here that remote working is the norm in some industries now so there is less overall relocation for work. That’s affecting the market quite a bit in some areas.

Here in Jersey homes have skyrocket simply because a lot of folks in NYC had less incentive to be there during covid-19, have moved, and now are remote or hybrid.
Agree with this. Working remote (as I have done since 1999) what is happening is people are moving to cheaper bedroom communities and taking advantage of lower cost of living. That is putting upward pressure on rent. Good if you are the landlord….
 

BeExcellent

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The only wise financial decision I ever saw my dad make was his rental trailers. The lower the value of a rental unit, the higher the percentage return on investment. He bought a 10' x 50' mobile home for $800, pulled it home with a pickup truck, put about a thousand dollars more in it in repairs and then rented it for $175 a month...for 35 years. And of course there are tenant and maintenance headaches; that's why not everyone can do it. Trailers and trailer parks are associated with poverty, but from growing up with landlord parents, I still see them today as wise rental property investments. In today's money in my area, a $8-15k trailer still rents for $400-$600 per month. That roi beats the hell out of an 8% reit.
That is exactly my strategy only with houses that cost 5-50K and return 3-8% ROI. It means you deal with the most difficult renters. But it pays handsomely.

Cheers to your dad.
 

Bible_Belt

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That is exactly my strategy only with houses that cost 5-50K and return 3-8% ROI. It means you deal with the most difficult renters. But it pays handsomely.

Cheers to your dad.
Thanks. My grandparents did well as landlords, too. Idk how you see the issue of pets. Most landlords hate them. My grandparents were always animal lovers, so they let tenants have dogs and cats. As more rentals stop allowing pets, your tenants with pets have literally nowhere else to go. They stay for years, sometimes decades. My grandparents have now both passed, but their tenants remain. Both have pets and pay $400 a month. That deal just isn't out there anywhere else. And because these tenants know they can't move, it makes them want to not destroy the place like typical tenants. Allowing dogs to the right people results in less damage, not more.
 

Machine10033

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bought my house 2009. 169k

6k hvac replacement
1.5k driveway sealed
13k new roof
8k new windows
4k tree removal
1200 water heater replaced
20k new kitchen gut and redo
6k old bathroom redone

Looking at 8k back patio in rough shape needs new concrete

latest issue retaining wall collapsing first quote 42k

so in 14 years you can see how much owning a home can run. My advice is buy as new as possible ( if you buy)... my house is now worry 300k... but it’s still been a massive headache
 

Bible_Belt

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retaining wall collapsing first quote 42k
Lol at that quote. You can do it yourself for 1/10th of that. A buddy of mine installed retaining walls and paver stone patios. Most customers were rich people who don't realize how much they overpay. The walls collapse because people don't pour a substantial enough of a concrete footing below them, and/or don't build adequate drainage. All you have to do is unstack it, dig the right hole, fill it with concrete, and stack it back. The right backfill helps drainage.
 

SpartanWarrior77

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Some food for thought:

I wish (if wishes were horses, dreamers would ride), that I had held onto the residence I had with my first husband in TX. We bought in 2005 for 245K on his VA benefit, which meant only 10K down. That house is now worth 1M 18 years later. That is quadruple in value. Could I have expected that to occur in stocks? Only with far greater risk exposure. And I wouldn’t buy a primary residence for that price now. Nope. Ties up too much money.

I’ve done well with my strategy of buying in safe/stable working class areas in the small town Midwest. That is what I could afford to acquire rapidly, and at one time I had 54 units. I trimmed my portfolio starting in 2019 and now own 24 units. I bought for cash flow, not appreciation and although I had front end deferred maint to do on most, those are non-recurring costs and if I provide some nice amenities other rent houses don’t have (granite counters, central HVAC), then I get higher rents and better renters. Because appreciation has occurred on top of cash flow, my net worth is higher than it was at 54 units. I’m about 70% free & clear across the whole portfolio too and the portfolio runs in the black and has for years.

But it has not been for the faint of heart. I’ve dealt with every imaginable issue from the property manager embezzling to tenants dying in a unit, to criminal activity to evictions to the major and minor repairs that always come up. One reason I chose small towns is that I could get to know city and county officials there and they could understand the value responsible ownership confers to the area. I can pick up the phone and call the mayor, the prosecutor, the city attorney or the chief of police. They all know me. My renters know they all know me too, and that influence is helpful.

The other reason I do rental property is as a creative outlet. When I get ready to sell I design the property and create curb appeal and interior design that maxes the value and provides something beautiful for the new owners. That benefits everyone and ups property values for the area. I enjoy that. It’s like a full size art project.
Very cool, thanks for sharing.
 

Slowhandluke

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Agree with this. Working remote (as I have done since 1999) what is happening is people are moving to cheaper bedroom communities and taking advantage of lower cost of living. That is putting upward pressure on rent. Good if you are the landlord….
So more rentals are constructed, and the prices go down. It's a never ending battle. If there is enough money to be made in a market, it will get filled and the prices will stabilize. Right now, rental prices in Chicago are going down - remote work/flex work (less people want to live in the city). However, the rental prices in the suburbs are going up. I'm sure, those prices will stabilize also.

At the end of the day, it's about flexibility and not chasing the market; also a good portion of investing is based on luck. Luck cannot be controlled, but being flexible and not chasing the market can be.

Just my opinion :)
 

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BeExcellent

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I allow pets @Bible_Belt for the reasons you note. And I have a couple of tenants in 2/1 houses that have been renters for 10+ years. They are never moving and I have had zero vacancy loss.

They have paid off my houses in both cases.

One of them has a dog. Fine.

Now days I charge pet rent. I up the rent $25/mo per dog, $20/mo per cat. That pays me over time to deal with pet issues.

One of those houses I paid 48K for it. Cute stone Tudor cottage. Rent is $425. In today’s market I could get $650 for it and I could sell it now for 100K.

Why? Over the last 10 years that house has earned 51K and the rent has never been late. The bank note is paid off, I pay property taxes, maint and ins. It is a money tree.

In real estate if you are paying attention you create your own luck. When I first was buying people thought I was crazy for long distance ownership, buying in a non appreciation market, buying little pre & post war cottages. Now those houses are historical & charming, have cash flowed well & the appreciation has been gravy. Add the rising interest environment keeping buyers from qualifying for a place?

I look lucky indeed, but it’s more by design than by luck I assure you @Slowhandluke.
 

Mazer

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If you love the area where the house is, then buy the house. I just sold my house and moved into an apartment in a major city. I’ve met more women the last two weeks living in the major city than I did living eight years in the burbs. I also wouldn’t buy at these prices. I am a real estate investor and have sold off most of my single family home investments. I have about forty flips under my belt. You’re going to be buying at the height of the market. Good Luck.
 

Machine10033

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Lol at that quote. You can do it yourself for 1/10th of that. A buddy of mine installed retaining walls and paver stone patios. Most customers were rich people who don't realize how much they overpay. The walls collapse because people don't pour a substantial enough of a concrete footing below them, and/or don't build adequate drainage. All you have to do is unstack it, dig the right hole, fill it with concrete, and stack it back. The right backfill helps drainage.
I tried... it’s a 70 year old massive drystone wall... there is almost no access to the back of my house so these massive rocks will need to be manually taken out and walked to the front. That’s the price for a landscaper/hard scape.. I have a mason coming and he says they can actually do repairs and prevent further erosion from adding some drainage.

once I get this thing taken care of I’m getting tf out of this money pit. When I was a naive 27 year old I didn’t pay attention to the big stuff that could cost the most.
 

Slowhandluke

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I look lucky indeed, but it’s more by design than by luck I assure you @Slowhandluke.
The theory of the black swan contradicts your statement. In addition, you probably have survivorship biases.

To predict an event 10 to 15 years in the future is extremely hard to do. Those that "can", according to most professionals in the field of risk management, can be accounted for by shear luck.

Flip enough coins, and you will get 5 heads in a row. Have enough people playing the stock market, and by chance their will be a few that have results that seem prescient. Same with any other investment where there is a lot of participants. .... Even real estate.

Not to poo poo your work, but unless you were able to pivot and be flexible, longterm planning is fraught with unknowns. Hence, instead of longterm goals, it was your ability to be flexible and adapt that helped you to be where you are at. Just my opinion. I have done a lot of research on this topic.
 

BeExcellent

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The theory of the black swan contradicts your statement. In addition, you probably have survivorship biases.

To predict an event 10 to 15 years in the future is extremely hard to do. Those that "can", according to most professionals in the field of risk management, can be accounted for by shear luck.

Flip enough coins, and you will get 5 heads in a row. Have enough people playing the stock market, and by chance their will be a few that have results that seem prescient. Same with any other investment where there is a lot of participants. .... Even real estate.

Not to poo poo your work, but unless you were able to pivot and be flexible, longterm planning is fraught with unknowns. Hence, instead of longterm goals, it was your ability to be flexible and adapt that helped you to be where you are at. Just my opinion. I have done a lot of research on this topic.
You see, you entirely missed the point, however I’ll speak to your point (since you have just proved mine, lol.)

I was a contrarian when I started buying rent houses. But here’s the thing. Like @Bible_Belt ‘s dad, my houses were bought correctly and cash flowed from the first year. I wasn’t trying to guess or time the real estate market, that is a terribly foolish thing to do.

You see, someone is teaching school in a small town. Someone is a nurse. Someone works at the courthouse, someone works at the gas station; the McDonalds, someone is a police officer or a sheriff deputy. Those people need places to live and be close to work.

My strategy was working & building wealth prior to Covid. So there was no predicting the future & getting lucky. There was finding a place where I could afford houses and make high returns, and provide a product (housing) that people need. And even if a few new apartments get built (which isn’t feasible for a big developer in a small town), people still want a house, a yard, more space & more privacy.

So no. Luck has not been involved. This has made me a millionaire @Slowhandluke. How’s your theory working out for you?
 
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