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Is It Better to Rent or Buy?

nytimes.com

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Re: Is It Better to Rent or Buy?

#41

Post by jliptzin »

mbostock wrote: post #18

Author here. Thought I’d highlight my favorite, perhaps non-obvious feature: the slope of the charts tells you whether the variable is positively or negatively correlated with the cost of buying. And depending on the settings, that slope can change from positive to negative. For example with the defaults, the down payment chart is flat. This means the total cost of buying is relatively unaffected by the size of your…

Really valuable stuff here. Thanks.

One small addition I'd consider adding is estimated rental income if you buy and plan to rent out a portion of the property. I am in the process of buying a home right now and plan to do just that, but this factor seems to be missing from the chart.

Re: Is It Better to Rent or Buy?

#42

Post by Dystopian »

dgabriel wrote: post #11
marknutter wrote: post #9

If you buy, you can do whatever the heck you want to with the house or your yard. That's true freedom and to some people - myself included - worth every penny.

Not true in many, many cases. HOAs, condo boards, zoning laws, and historical societies can control homeowners pretty well.

THIS.

One of my co-workers bought a condo recently and remodelled the interior. Got a great gas grill island - with it, he needed an exhaust fan above.

During the reno he got handshake approval from the board president, and ended up having a really inconspicuous grate installed above one of his windows. Long-story-short, a board member complained, they voted, and he ended up paying $5K to have it removed, and now has an exhaust fan inside that isn't hooked up to anything.

If you're going to buy, make sure you check out all this kind of stuff before-hand (especially with condos).

Re: Is It Better to Rent or Buy?

#43

Post by vonmoltke »

hkmurakami wrote: post #33
jleyank wrote: post #2

I said this when such a thread came up the last time: If you can (easily) switch jobs without moving it might make sense to buy. If you can't, however, renting is the safer option as you can move if/when there is a problem with the job. Domiciles can be rather illiquid at times, which sucks when you need to move for work. It's a separate question if it's worthwhile to buy at all, as that's dependent on geography, pre…

Some people say "oh you can always rent the house out!" but they often forget that once they move away and have to hire a property management firm, the fees that they'll have to pay will erode the rent revenue below breakeven with the mortgage payments (without such a manager, you can frequently break even or better vs mortgage)

First, it depends on the rental market. Unless the local housing market deflates, after several years you should be able to get more than your expenses in rent, even after giving the management company their 10% (or whatever it is in your area).

Second, the break-even point is based on the principal to interest split in your payment. That is a function of your loan term and how deep into the term you are.

Re: Is It Better to Rent or Buy?

#44

Post by mbostock »

jliptzin wrote: post #41
mbostock wrote: post #18

Author here. Thought I’d highlight my favorite, perhaps non-obvious feature: the slope of the charts tells you whether the variable is positively or negatively correlated with the cost of buying. And depending on the settings, that slope can change from positive to negative. For example with the defaults, the down payment chart is flat. This means the total cost of buying is relatively unaffected by the size of your…

Really valuable stuff here. Thanks. One small addition I'd consider adding is estimated rental income if you buy and plan to rent out a portion of the property. I am in the process of buying a home right now and plan to do just that, but this factor seems to be missing from the chart.

Thanks, that’s a good suggestion. There are additional tax considerations with second homes (and business properties), but it’d be nice to include these in the model.

Re: Is It Better to Rent or Buy?

#45

Post by ernestipark »

mbostock wrote: post #35
dmnd wrote: post #25

Earlier quoted context omitted.

I've been using the old version of this for a few months. Making it obvious to which parameters the result is most sensitive is a huge improvement, thank you and well done!

Thanks, that’s good to hear. There’s always a risk releasing a new version of a popular tool. For those that still want to use the old one I think we’ll find a new home for it, too.

I really do like this new version as it seems easier to answer the main question at hand. I did like some aspects of the older one though (all #s more easily digestible, the big graph) so seeing it in a new home would be nice.

Re: Is It Better to Rent or Buy?

#46

Post by sliverstorm »

hkmurakami wrote: post #33
jleyank wrote: post #2

I said this when such a thread came up the last time: If you can (easily) switch jobs without moving it might make sense to buy. If you can't, however, renting is the safer option as you can move if/when there is a problem with the job. Domiciles can be rather illiquid at times, which sucks when you need to move for work. It's a separate question if it's worthwhile to buy at all, as that's dependent on geography, pre…

Some people say "oh you can always rent the house out!" but they often forget that once they move away and have to hire a property management firm, the fees that they'll have to pay will erode the rent revenue below breakeven with the mortgage payments (without such a manager, you can frequently break even or better vs mortgage)

I don't think people necessarily see that as a perfect solution in which they make a profit. If you can come close to breaking even by renting it out, that gives you more runway with which to sell the place. Reduces the time pressure, so to speak.

Re: Is It Better to Rent or Buy?

#47

Post by refurb »

The calculator is surprisingly accurate based on some math I did late last year when thinking about buying a house.

A small (1300 sq ft) house in SF can be bought for $750K in some neighborhoods in the south of the city. The ones in between the fancy ones and the crappy ones.

I did a pretty detailed analysis of what everything would cost. Loss of investment income on the down payment, insurance, property taxes, etc. And came out to around $4100.

You can rent the same house in SF for around $3750/month, so unless you're assuming a pretty spectacular rise in home values, it doesn't make sense to purchase.

Re: Is It Better to Rent or Buy?

#48

Post by larrys »

tolmasky wrote: post #37
marknutter wrote: post #9

If you buy, you can do whatever the heck you want to with the house or your yard. That's true freedom and to some people - myself included - worth every penny.

If you rent, you can leave whenever the heck you want and then go live wherever the heck you want. That's true freedom and to some people - myself included - worth every penny. Its really interesting the different things people value. I value not fundamentally worrying if there were to be an earthquake and this place would be destroyed. I value one day waking up and deciding, hey, I think I want to go try living in P…

"If you rent, you can leave whenever the heck you want and then go live wherever the heck you want. "

You can do that when you own as well. You have to sell your house. After all you can't just get out of a lease whenever you want it goes according to a fixed time period. You have constraints as far as lease renewal, term and things like that. If you own you can decide at any point to sell (although certain times of the year are better obviously).

"I value not fundamentally worrying if there were to be an earthquake and this place would be destroyed. I"

Well first that is only a concern seriously in certain areas and second I wouldn't call that exactly something that is a common occurrence either. It's like saying "if I rent (edit fix) I don't have to worry about rebuilding if there is a fire".

"hey, I think I want to go try living in Portland, or just a different neighborhood here."

Ok so I understand your point now (but will leave the above comments for discussion). You actually are looking more to experience different things and not get tied down. Similar to the fact that some people would rather go to a different vacation spot each year rather than own a vacation home in the same place.

In that case an argument can be made that it makes sense to actually pay more to rent than to own because you are deriving some other benefit from not owning that is actually worth more (maybe that is what you are saying..)

Re: Is It Better to Rent or Buy?

#49

Post by thedufer »

steven777400 wrote: post #16
mcarvin wrote: post #8

For full disclosure I am a founder of the company but many of the mistakes in math / modeling made in the NYT Tool are corrected at SmartAsset. One example is the tax consequence of ownership - which because of the standard deduction is overestimated for lower value homes (<$250,000).

I just wanted to reaffirm what you're saying about the deduction on lower value homes. When we bought, people were telling us "you get to deduct the interest, it will be a huge impact!" Well, these days thankfully, interest rates are relatively low. We paid a little under $200K for our home, and combined with the married standard deduction, the interest at first barely even pushed us into the itemize category. By nex…

It varies widely based on where you live, too. For example, in NYC state/local taxes are high (these are deductible on your federal return) so anyone with a reasonably high income is already beating the standard deduction, making the interest deduction a very large advantage.

Re: Is It Better to Rent or Buy?

#50

Post by gibybo »

tolmasky wrote: post #37
marknutter wrote: post #9

If you buy, you can do whatever the heck you want to with the house or your yard. That's true freedom and to some people - myself included - worth every penny.

If you rent, you can leave whenever the heck you want and then go live wherever the heck you want. That's true freedom and to some people - myself included - worth every penny. Its really interesting the different things people value. I value not fundamentally worrying if there were to be an earthquake and this place would be destroyed. I value one day waking up and deciding, hey, I think I want to go try living in P…

From what I've seen, you generally need a 12-24 month lease to rent a house. I can sell my house whenever I want (or leave and rent it out to someone else), but if I'm stuck in a 24 month lease I'm stuck for the next 2 years.
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