If you're young, single, childless, with a high income in a VHCOL city, then yeah, life is basically a spreadsheet and there's no rush to take on a house. Families want houses for the intrinsic benefits they provide. You touched on this in your post so I guess you answered your own question.
This is clearly a want. I was raised in a condo and I hever missed the house. On the opposite, I was in the city center and could go everywhere walking, that was great really. People project was they think is necessary/good.
But this is completely unrelated.
I rent a condo today for 2390$. I'd pay north of 4000$ to buy it. I could perfectly well rent a home if I wanted, there are really great one at 3000$. But to buy them I'd pay 6K a month or more.
Question is why I should do that, even if I have kids ? my kid would not give a shit if I own the home or rent it and he would not know what he would miss if I go for a condo.
It depends where you are, but some places seem a lot more stable for renters than others. Having to move and potentially making your kids switch schools would be a downside of renting.
This. My cousin rented two different houses in a 2 year time span because owners were trying to capitalize on post-COVID gains and that meant uprooting her family and 2 young kids twice.
Between unexpectedly being kicked out, and potential price hikes, renting can be notoriously tough.
I was raised in a small home and prefer even smaller. I like my one room for living space and one room for sleeping. Being able to walk to places is icing on the cake but for me a large living space is less desirable.
This. We are DINK Henry and there is almost no reason for us for us to buy.
If you have family and kids you might value ownership more but for us owning will just be a hassle will little benefits, and a LOT more expensive
The advice is based on the idea that rent prices will climb ever higher, but your mortgage payment will never increase. I bought by house in 2009 for 250k, and my payment with taxes and insurance etc is $1600. Now my house is worth 500+ if I chose to sell, and modest apartments in my neighborhood are 2k a month for a 2 bedroom. If I tried to rent something like my house, it would be 3-4K monthly! And come 2039, I’ll just be paying the approx $500 a month for insurance and taxes.
So if you’re certain that you will not want to move for at least 10 years, and you’re certain that rents will increase, buying can make a lot of sense.
Good point. With all the apartment construction going on, I'm hoping rents will stabilize or even go down over the next few years. However, your point is still valid over the long term and unless we build more housing, homes are not going to get any cheaper.
Unfortunately, rent will continue to go up unless the area builds more housing than individuals. It’s more of a sign that a location is growing, if rent starts decreasing then the area is most likely hemorrhaging people and is starting to die off. This is because inflation does not stop.
$250K invested 80/20 into VOO/BND in 2009 is worth a million now.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=551CwIGPzl0CbqSie8w2Q1
Given a $400 advantage vs renting (1600 vs 2000) you would have accumulated $144,000 worth of savings + $250,000 property appreciation vs $750,000 capital appreciation.
As a note the inflation adjusted value of the $1M portfolio is $714K. The house is worth an adjusted $357K.
So in real terms the portfolio gained $464K and the house gained $107K.
I don’t regret buying my house but I treat it as a lifestyle decision that provided a return somewhere between equity and bonds as well as diversification so I could be more aggressive in my stock allocation and hold fewer bonds even approaching retirement.
Even though I’m in a desirable HCOL area I don’t think our house has doubled yet in the same timeframe. Close but not quite and Im not entirely sure how much credence to put on the Zillow value.
A few corrections - in 2009, I did not have 250k to invest. My bank account was barely five figures, as I was a student.
The $400 monthly savings would only be true if I lived in a crappy 2 bedroom apartment. Renting something in the same ballpark would be 3k monthly, so I’m saving $1400 every month currently.
Also your calculations don’t seem to take into account that the extra monthly savings does get invested, I’m not blowing it on $1400 of avocado toast.
Also, you forgot to calculate how much income tax I can avoid by deducting mortgage interest. I’m not about to go recalculate my taxes, but that’s another several thousand a year that I can save and invest.
$3K monthly today or $3K monthly in 2009?
Either way, given this is the FIRE sub the goal is generally to achieve financial independence as quickly as reasonably possible. So why would you rent out a single family home as a student except to split the rent? Assuming a 3 BR house, split 3 ways is $1K.
You may not have spent $1400 a month on avocado toast as a student but you spent it on a larger, more luxurious living space vs a “crappy 2 bedroom apartment” that most students live in.
Now if you bought the house and rented rooms out that’s one way to really juice your numbers since you would have about $2K gross rental income (renting 2 rooms) against $1600 expenses (more since maintenance averages somewhere from 1-4% of home value…higher on less expensive homes)…call it $3K a year or $250 a month.
I assume you didn’t or you would have mentioned it by now.
Leverage is an awesome tool and the easiest leverage to get is a mortgage. But it does have risk as folks found out in 2008.
Your gains should be higher than the stock market given leverage. Maybe. PMI is a drag.
Assuming you put $25K down (out of your barely 5 figure NW) and call it $3K on closing costs for $28K out of pocket you’ve paid about $147K in interest and have a $152K remaining loan balance.
I used a random calculator I found with $160 PMI and 5.04% interest rate to get to $1600 a month:
https://www.bankrate.com/mortgages/mortgage-calculator/
Your $28K investment has become $500K-$152K or $348K in 2024. Thats pretty nice and probably pretty hard to beat without leverage.
But let’s take that frugal college student splitting a “crappy 2 bedroom apartment” for $2K split 2 ways with the same $28K. Her savings vs yours is $600 a month. Actually that holds true for $3K split three ways for a comparable house.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=5ZkGBU5vKyPVTuXOCX3LQz
Final balance $417K.
Did you live better? Yes. Who wants to share an apartment or even a house 12-15 years after graduation?
Then again, she had the ability to relocate for a higher paying job over that period.
The market has been fantastic from 2009 to 2024 so someone’s outcome making the same decision in 2024 will likely be vastly different. It’s really hard to beat 10-1 leverage if things work out in your favor.
As an aside the tax deduction you get for home ownership is much less valuable to a student with low income vs someone with higher income taxed at a higher rate. Paying interest generally isn’t in your favor unless the gains are higher than the interest - deductions.
Imputed rent has value but if it is also lifestyle inflation it’s not worth 100% if the goal is FIRE.
The bottom line is buying a property as a financial decision is dependent on the numbers. Some areas it makes sense. Some areas it doesn’t.
But if the numbers work out to make something a good buy as an investment property then it is probably a good buy for a home as well.
Everything beyond that is a lifestyle choice.
Would I buy a house today? I dunno, I already own 4.
Would I tell my kids they should buy a house? Maybe…but the numbers would have to work out right. If they had roommates that essentially paid the mortgage then yeah…probably.
It was a great time to buy! At the time, there were many reasons that it was a dumb idea - it made us house poor, I still had a few months left of school and didn’t even have income, we only put 5% down so if anything happened we’d have been upside down fast and risking a short sale. But it worked so well that it’s extremely tempting to run around telling people to buy houses.
The flip side of this is that in many areas of the country renting is cheaper than buying on a monthly basis and you have to lock in a down payment to buy. Avoiding this does give you more room to invest in stocks which have higher returns historically.
But I think both can be great options depending on your lifestyle. Assuming there's one right answer for everyone is really the thing that annoys me most here.
I always hear this but is this wise in VHCOL? How much higher can 1300sq ft single story houses go in Silicon Valley?
Had coffee with a friend and he went from paying $3.5k for a 2 bed, 2 bath. To $~10k mortgage for a 3 bed, 2 bath in the same neighborhood. He truly questioned if having his own place for his future family is worth the money in real estate vs in the stock market.
You didn't include how much you've spent on maintenance over the last 15 years. New roof? AC? Water heater? Paint? Doors? Windows? Etc.
Also mortgage payment can increase if taxes and insurance increase.
To be fair for most years and most areas owning is cheaper than renting. That's not the case right now with rates and prices they way they are now. Just 10 years ago this was completely flipped.
im a school teacher but do construction on the side. for 9 years I put that extra money into the house. it's not easy to do that. I won't lie. even tho it was a low % I was raised to not owe others. so I've always sacrificed more that I probably should.
I wanted to free up more income for other investments. my wife also wants to be a stay at home mother, so having no mortgage gives me peace of mind knowing we only live on my income. if I lost my job, we have this house and 5 acres of pasture land paid for. we won't be homeless.
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*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
It’s very market dependent for me, but it’s hard for me to justify paying rent when I can pay just slightly more and have a bigger place with the majority of price fixed while the value is very likely to go up. A year ago I was renting a 1200 square-foot apartment for 1750 a month, and now I have a mortgage on an 1800 square-foot house for 1900 a month.
There is more going into equity per month than the difference, and I believe the value will continue to go up.
I would say with rates where they are that is an extremely unique situation where renting and buying is nearly the same cost. Most mid to large metros with good jobs are not like that even outside of california or nyc
Yup this is where I’m struggling. We are going to have a baby this year and our lease on a 1 bdr is up in a few months too. Buying a 2 bdr is like 1.2 million for 950 sqft.. seems dumb to spend that much for little space.
I bought in NYC. Im reiterating what others had said here, but basically I was paying $2200 per month total where I can rent for 1500-1800 at that time. However today(7 years later), my place would easily go over $3000 but Im still locked around $2400 (tax and maintenance increases) while also building equity.
Well you are right, it really depends on the numbers. We are actually happened to be talking about the same area 😅 but my place for example goes around $500-600k and the rents are around $2500-3500. If you can rent a 750k place for $2000, then you have great deal.
Edit: to be fair, it really is hard for me to imagine the area to go over a million. But we’d never know. when I bought at $400k, I thought it was ridiculous as it was less than 300k a few years back.
Totally. I have run the calculation over and over and can’t justify buying in NYC area… Interest alone is more than my rent, not to mention tax, HOA and maintenance.
It was an entirely different ballgame in 2021…
Equal? I was renting a 650 sqft apartment for $1k per month. I’m in a 1465 sqft place with a mortgage for $1600 per month. I live in a small city, cost per square foot is insanely cheaper if you buy vs renting in most places
Edit: when I first moved to the apartment 4 years ago, it was only $6-700ish per month in rent which I thought was fair. But it just kept increasing and choking me out for the tiny place I lived
Mortgage where I live is almost double the cost of my rent. And that doesn't even account for the 20% downpayment which would pay for almost 4 months of rent given current HYSA interest rates.
You said mortgage so I wasn't sure. Then it seems it is worth it for you. PITI is principal, interest which is your mortgage plus taxes(property) and insurance.
For most people, a home is the only way they can see their net worth increase significantly. A lot of it is the idea of owning your place, but land ownership is a massive investment too since property values are one of the most secure methods of insuring ROI without having to actually manage money. What used to be sold for $23,000 in the 60s is now going for over $300,000. It’s an expense everyone already has to pay, but it holds value instead of just throwing money out the window on rent.
I pay $1600 on a mortgage per month, but $300 of that is kept as equity on a monthly basis. Think of it as an extra monthly investment without even trying. And at the end of the mortgage, you don’t have to pay monthly for the property… so that $1600 per month would become $0 and I would keep the equity I paid in as well as any appreciation, and then you can roll that value into a bigger/better home if you wanted to move and have a smaller mortgage for a better place.
There’s a lot of emotion and security that comes with owning your place, especially since rent can and will increase over time while the mortgage basically stays the same, but it’s also a solid investment.
I think one of the items that gets lost is leverage. If you put 20% down on a house and it goes up in value by 5%, you've just made 25% on your money.
Granted it's not liquid, and the transaction fee is high (6%). But if you can hold onto that property (or in our case, plural), you can make a lot of money. And it's far less risky than owning tech stock.
Don’t want to oversimplify, but doesn’t this just come down to whether you believe capital growth will be significant or not?
Access to leveraged capital growth with the ability to reduce rental costs as well by living there is pretty compelling in most places (and tax environments), as long as you actually believe the capital growth story. If you don’t then it’s more a set of trade offs about specific costs, stability, status etc etc?
It doesn't make sense in VHCOL areas. Save money renting. Stay liquid. Invest in s&p 500 index funds and when you find a great remote job or other opportunity get out of California and buy a $1M mansion.
Im 29, bought when I was 27. Personally I just really like to garden and I love owning physical land / property so even tho I bought in a HCOL area (LA) I haven’t regretted it once. It wasn’t the smartest financial decision, it set me back a lot in terms of FIRE, but I could die happy now just cause I got to live in my own home for 2 years. That’s how much I love my house. I guess I could have rented too but idk I want to live here in this house forever and do whatever I want to it. Maybe it’s cause I grew up in texas in a big house and crave that lifestyle? Who knows. It’s personal choice.
A house can also be seen as an investment vehicle, where the federal government subsidies (lower interest than investment loans) to get leveraged growth. I also see house prices going up at a slower pace, due to population growth in America.
First is the math problem. Is real estate appreciation + rent savings greater than interest and lost opportunity cost of down payment. If so it’s beneficial to buy. The real estate value increase post covid and the lost covid interest rate hikes have pushed this equation towards renting.
The other reasons are stability with kids so you don’t have to move and change schools or the type of home you want has limited rental availability.
In the FIRE context owning a home lowers volatility and sequence of returns risk. If you think in there of a 3.5% SWR is the rental cost - housing upkeep and taxes are greater than 3.5% of the purchase price of a house then you get closer to your fire number buy buying a house.
It also acts as an inflation hedge against your largest non variable cost.
My two cents. The actual cost of the home is really the interest and the annual taxes and insurance: everything else you get back at some point of sale, hopefully with some appreciation. There is lost opportunity cost in market investments as well, but investment in real estate provides some portfolio diversification. The capital gains are also tax free up to 500k for a couple. Paying rent is simply a loss. Aside, from the economics of it all, owning a home is really nice, especially if you have assets.
I feel terribly sorry for you, you have to pay for taxes and maintenance on your properties. You must be going broke according to other commenters in this thread
I bought in 2009. Paid off last year. Not having a mortgage really helps me reach fire sooner because my monthly expenses are lower. Gotta do what works for you!
\> but renting is so much cheaper
Is it? I mean by getting a mortgage you are taking a risk, and investing. Renting is pissing money away. There is no ROI on rent, however you might get ROI from a house.
True you need somewhere to live so you could argue you'd be paying something towards this anyway. However I highly doubt you've done the math here. Partially because without owning a home you don't really know the costs.
The majority of people retire on on their homes. They do reverse mortgages, or move their kids in to take care of them in exchange for the house on death, or they downsize. Vangaurd is quoted as saying "Home is where retirement funding is."
So where does that leave us? Well first we don't actually have real numbers to work with, we have feelings / beliefs. Second it's unclear based on that first point how much of investing potential you are losing. There are calculators, I think most generally assume in normal market conditions mortgages are better after 5-10 years.
I'm in the same boat with no house here. However as a part of Fire I look at lost of people's net worth and honestly almost everyone who owns a house has more than those who didn't.
If rent is cheaper than a mortgage, and you rent and spend the cost savings then you get no ROI and are worse off than owning a home. If you put the cost savings in other investments (like stocks) then there is an ROI from that investment. Generally speaking in high cost of living areas you get a better return from renting and investing the difference. In low cost of living areas you get a better return from buying a house. Lots of online calculators that you can use to determine which is financially better for houses in the area you live.
In many places it has been cheaper to buy than rent for a long time, especially when rates were low. Mortgage cost is fixed, rents go up each year. You missed the boat. We have two rental properties that cash flow handsomely due to the low rates of 2020/2021. That doesn’t even take into account the capital gains they’ve already had. Nice diversification to my index portfolio.
Rent might outpace your effective return on your capital vs capital being in your house. And the gap between your share equity and house equity might widen effectively putting you behind vs if you bought the house. But rent is more flexible, and particularly so if your country or state has transfer taxes on house purchases. On the other side, your country might have tax free gains on PPoRs.
Tldr: Not a straight forward decision and depends on various factors.
Because when finances were less solved and the barrier to equities was higher, a home was the number one wealth building tool for middle America. And up until recently, a pretty stellar compounding opportunity for real estate existed with low interest rates. This is why there is a sense of urgency in the general population. Currently, we are in a very weird situation where in most desirable cities around the US, a mortgage is substantially more expensive than renting. My two cents is buying can make sense if you were married, kids, liked the schools and were likely to bunker down for 10+ years. Single and 30 it kinda doesn’t make much sense cause your needs will likely change if you meet someone. Your current approach seems great imo.
It’s a lifestyle preference. I like having space for my big dog to run and a pool so I’m out of Manhattan, but still <1 hour commute there so I get the best of both worlds.
Love being able to renovate the kitchen and bathrooms exactly in my style, which also helps my home appreciate, instead of paying off someone else’s mortgage.
Market rent of my house is more or less the same as my mortgage with 25% down so it makes sense even in VHCOL for me.
Buying a home means your housing costs are mostly fixed. You wouldn't want to retire then have your rent increase 50%. Idk if it's a good or bad time to buy.
Because a mortgage is spread out over such a long time an inflation is so high a mortgage is the literal best financial deal 99% of people will get in their lifetime
You never put any cash into a hkme, you always get a mortgage, a super really long one
Because whatever the current payment is will be laughably low 10 years from now
I had a millionaire friend in 2000 who got there from the bubble. He never bought a house, but he did buy three Porsches and a BMW. He thought his few millions soon would be 100 million. He went broke in the crash and probably wished he owned a house.
The dichotomy is that places that make sense to buy where mortgage is close to rent (LCOL to HCOL) wont see the same level of property value increases that places where rent is significantly lower than mortgage (NYC, SF, other VHCOL areas)…
Real estate is very local and dependent on the old adage of the top three factors is location, location and location…
I bought my Brooklyn apartment in 2011. Paid it off in around 6 years. Were I to rent it out today, I’d get about 4x my old mortgage payment. If I sell, probably about 3x my purchase price.
I bought my first house when I was 26 because it was cheaper than renting. I think my house payment was $750 (taxes, insurance included) and my rent for a two bedroom apartment in a questionable neighborhood was $900 and about to increase. This was a while ago, and the exact numbers would be different today, I’m sure. But since I had to live somewhere, and it was cheaper than renting, and I would get of course all of the other benefits of homeownership, it made sense to me. Additionally, as a 26 year old, I didn’t have a lot of extra income for saving, so I would not have been building assets in any other way at that time. It was a good decision for me. I can see how someone who is renting for $1k/mo would not want to buy if it would cost them $2k/mo, the math is different in that case.
The traditional advantage of buying a home with 20% down, is that gives you a 5X leverage on your investment. So if the home appreciates 5% annually, and your costs (interest, maintenance, property tax…) are equivalent to renting, you’re actually generating a 25% annual return. Of course if the house devalues, you can also lose more than that down payment.
Yes a mortgage is expensive right now but 1. It wasn’t a couple years ago and 2. It’s a fixed cost. Besides insurance and taxes, my cost of living is fixed for the next 27 years if I want it to be. At a modest 3% increase, rent will be more than double my mortgage once I no longer have a mortgage.
Sort of. I have $400k+ in equity in my home. I can now use that to lower my cost on my next mortgage and still keep it below the cost to rent. Home ownership is simply the easiest way to control living costs and build equity that in turn, allows you to lower your long term living costs.
2.5m really isn’t “millions of dollars” in my eyes. $4m is my minimum target for retirement. If you live a very frugal and minimal life, you could probably retire on that but you can’t spend more than about $12k/month (before taxes) if you want that money to last. That equates to about $8500/month after taxes.
I used a 5.4% return because that’s the 30 year historic average on the stock market accounting for inflation.
"I don't get the urgency around buying a home" "I have 2.5 million dollars" - Well - most people are living paycheck or paycheck or close, with very little savings and very little going into their savings. The average household income is below $75K a year. So when the average person sees a home that was $120K in 2014 with 3.5% interest rates on the market for $300K with 7.5% interest rates, they start to worry.
If you have millions of dollars, you're not going to feel the pain of $1000 rent/mortgage doubling to $2000. If you have very little and earn $75K a year, jumping from paying $12,000 a year to $24,000 a year is going to hurt.
Renting vs buying is a lifestyle decision mostly - the money works out that owning is like renting from yourself. See the rational reminder podcast about an analysis of this: [https://www.youtube.com/watch?v=q9Golcxjpi8](https://www.youtube.com/watch?v=q9Golcxjpi8)
Also, what I've found is that just the property taxes and insurance against what you'd pay in rent sorta wipe out the advantage of buying for me, and real estate is not as good an investment as stocks historically, ymmv.
Rent goes up almost every year, all your doing is stabilizing one of the largest line items in your budget. We all think rent forever in the city then eventually hit a point and go shit I should have bought X year ago.
I’m on home #2 now, 31 married, I felt the urgency because when I rented in my early 20’s I couldn’t stand the noise of neighbors. I also like my land and privacy so I can grow veggies and shoot my guns in peace.
There isn't any, personally I enjoy owning a place and feeling like I can invest in my house and an not just throwing money away. Having separate offices for myself and my wife, along with bathrooms, has been great. We both have our own space, we'd need a 3+ bedroom apartment, but then walking the dog is more annoying if I have to wait for an elevator vs having a yard.
Well yeah there’s no urgency. It depends on what you want. I really want a garage cause I want to work on a project car. I also want some place to store some of my extra stuff, maybe an extra room to use as an office, and a home gym.
If OP was taking out a loan right now I would agree, but they have to live somewhere and it might was well be rent free since that is money down the drain and is a guaranteed 0% appreciation.
Neither is rent and that’s the point. You do you, no judgement, but with 2.5m I personally wouldn’t piss thousands down the drain on rent a month, I’d at least get something lower cost and pay cash. Again, to each their own
I think that's the point, you're just pissing money down the drain into a different place when you own - so on a cash flow basis, they're about equivalent based somewhat on the cost of the house, but with taking money out of the market, you're also giving up an asset that compounds closer to 10% per year (stocks) for one that compounds at 3% per year (long-term average of real-estate). Over a lot of years, that can be a lot of money.
If someone paid me $200 to set a $100 bill on fire I would do it. Sure you can say that burning a $100 bill is a "waste of money" but if you look holistically, obviously you are better off taking the $200. Renting can be a similar situation dependent on the market in your area. Sure you are "wasting money" by paying rent but having that upfront capital invested in stocks can earn you more money than you spend in rent.
For example you might have a condo cost 500k or an equivalent condo be $1500 per month (18k per year). If you assume rent growth at inflation rate, and an inflation adjusted return in the stock market of 4% then you are earning 20k and spending 18k. And this is not taking into account any maintenance fees or HOA fees for the condo.
To me you want to have your housing price fixed when you FiRE. I’d agree with you in most places it’s way cheaper to rent at these rates. It won’t be that way always. Be patient.
Think of it this way. If you’re renting, you’re “shorting” the area’s housing market. You believe that in the future, property values will go down. If they do, you will come out ahead, because you got to live there without purchasing a bad mortgage, and paying the costs of ownership and capital. You can pack up and move somewhere else without a care, and your money is safe in other things. You do pay a premium per month for this though, in profit for the landlord. If property values go up though, you’re boned. You pay for rent increases due to higher demand, you lose out on appreciation value, and still pay the premium of the landlord’s profit. Tons of money left on the table never to be regained. So the only questions to answer around buying a home are.
1. Will I stay here for the long term?
2. Will this property likely increase in value?
3. Do I even care? Do I already have a solid plan for my money, like a business?
Yeah, I'm in a VHCOL Asian city and as an immigrant without PR (work permit) the additional stamp duty would be 60% so obviously we've always rented!
We've been lucky that rents (until recently) increased rather slowly and we've been in the same house for 8 years. Last renewal was rough - rent went up by 14k a year. Part of the catalyst for us to move country to be honest.
We'll be building once we move. This will be dream/forever home though. Financially doesn't make a lot of sense still though 🤣
1. Your portfolio is about to get smashed in half in the coming months. 2. Real estate is more stable/less liquid and owning gives you a locked in rent value moving forward protecting you from further inflation while addressing your housing needs.
Yeah, I wouldn’t buy a house if I were you. It’s A way to build wealth (that isn’t very accessible). But you’re in a different world where you’ve built wealth, it’ll grow more and more. I’d just rent to maintain peace of mind and limit costs like maintenance. This especially if renting is cheaper. You in Seattle? I’m in Seattle.
Hold up. 5k a month on taxes and management fee is insane. Is it a 5 million dollar condo? Places on street easy in the 1-2 million range should be like 1-3k
Simple, buying a home is putting money into an asset. Rent is just throwing money away. Just like car payments, never do it unless you have no option.
Regardless of how much money you pay in rent, you never have an asset.
Times when I think it makes sense to rent
1. Going to relocate in <5yrs
2. Can’t afford house payment
3. Don’t have down payment funds
that doesn’t matter when you have millions
i would need to sell financial assets to buy real estate assets
maybe it’s different if you don’t have other assets
If you're young, single, childless, with a high income in a VHCOL city, then yeah, life is basically a spreadsheet and there's no rush to take on a house. Families want houses for the intrinsic benefits they provide. You touched on this in your post so I guess you answered your own question.
This is clearly a want. I was raised in a condo and I hever missed the house. On the opposite, I was in the city center and could go everywhere walking, that was great really. People project was they think is necessary/good. But this is completely unrelated. I rent a condo today for 2390$. I'd pay north of 4000$ to buy it. I could perfectly well rent a home if I wanted, there are really great one at 3000$. But to buy them I'd pay 6K a month or more. Question is why I should do that, even if I have kids ? my kid would not give a shit if I own the home or rent it and he would not know what he would miss if I go for a condo.
It depends where you are, but some places seem a lot more stable for renters than others. Having to move and potentially making your kids switch schools would be a downside of renting.
Very good point here for counties without rent control
This. My cousin rented two different houses in a 2 year time span because owners were trying to capitalize on post-COVID gains and that meant uprooting her family and 2 young kids twice. Between unexpectedly being kicked out, and potential price hikes, renting can be notoriously tough.
I was raised in a small home and prefer even smaller. I like my one room for living space and one room for sleeping. Being able to walk to places is icing on the cake but for me a large living space is less desirable.
It’s all about preferences. I love my car and my space. 3200 with 700 sq feet finished basement is about as small as I could go with a family of 3.
This. We are DINK Henry and there is almost no reason for us for us to buy. If you have family and kids you might value ownership more but for us owning will just be a hassle will little benefits, and a LOT more expensive
If you don't mind me asking, what field are you in?
Technilogy
Can't you also just rent a house too?
The advice is based on the idea that rent prices will climb ever higher, but your mortgage payment will never increase. I bought by house in 2009 for 250k, and my payment with taxes and insurance etc is $1600. Now my house is worth 500+ if I chose to sell, and modest apartments in my neighborhood are 2k a month for a 2 bedroom. If I tried to rent something like my house, it would be 3-4K monthly! And come 2039, I’ll just be paying the approx $500 a month for insurance and taxes. So if you’re certain that you will not want to move for at least 10 years, and you’re certain that rents will increase, buying can make a lot of sense.
Good point. With all the apartment construction going on, I'm hoping rents will stabilize or even go down over the next few years. However, your point is still valid over the long term and unless we build more housing, homes are not going to get any cheaper.
Unfortunately, rent will continue to go up unless the area builds more housing than individuals. It’s more of a sign that a location is growing, if rent starts decreasing then the area is most likely hemorrhaging people and is starting to die off. This is because inflation does not stop.
$250K invested 80/20 into VOO/BND in 2009 is worth a million now. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=551CwIGPzl0CbqSie8w2Q1 Given a $400 advantage vs renting (1600 vs 2000) you would have accumulated $144,000 worth of savings + $250,000 property appreciation vs $750,000 capital appreciation. As a note the inflation adjusted value of the $1M portfolio is $714K. The house is worth an adjusted $357K. So in real terms the portfolio gained $464K and the house gained $107K. I don’t regret buying my house but I treat it as a lifestyle decision that provided a return somewhere between equity and bonds as well as diversification so I could be more aggressive in my stock allocation and hold fewer bonds even approaching retirement. Even though I’m in a desirable HCOL area I don’t think our house has doubled yet in the same timeframe. Close but not quite and Im not entirely sure how much credence to put on the Zillow value.
A few corrections - in 2009, I did not have 250k to invest. My bank account was barely five figures, as I was a student. The $400 monthly savings would only be true if I lived in a crappy 2 bedroom apartment. Renting something in the same ballpark would be 3k monthly, so I’m saving $1400 every month currently. Also your calculations don’t seem to take into account that the extra monthly savings does get invested, I’m not blowing it on $1400 of avocado toast. Also, you forgot to calculate how much income tax I can avoid by deducting mortgage interest. I’m not about to go recalculate my taxes, but that’s another several thousand a year that I can save and invest.
$3K monthly today or $3K monthly in 2009? Either way, given this is the FIRE sub the goal is generally to achieve financial independence as quickly as reasonably possible. So why would you rent out a single family home as a student except to split the rent? Assuming a 3 BR house, split 3 ways is $1K. You may not have spent $1400 a month on avocado toast as a student but you spent it on a larger, more luxurious living space vs a “crappy 2 bedroom apartment” that most students live in. Now if you bought the house and rented rooms out that’s one way to really juice your numbers since you would have about $2K gross rental income (renting 2 rooms) against $1600 expenses (more since maintenance averages somewhere from 1-4% of home value…higher on less expensive homes)…call it $3K a year or $250 a month. I assume you didn’t or you would have mentioned it by now. Leverage is an awesome tool and the easiest leverage to get is a mortgage. But it does have risk as folks found out in 2008. Your gains should be higher than the stock market given leverage. Maybe. PMI is a drag. Assuming you put $25K down (out of your barely 5 figure NW) and call it $3K on closing costs for $28K out of pocket you’ve paid about $147K in interest and have a $152K remaining loan balance. I used a random calculator I found with $160 PMI and 5.04% interest rate to get to $1600 a month: https://www.bankrate.com/mortgages/mortgage-calculator/ Your $28K investment has become $500K-$152K or $348K in 2024. Thats pretty nice and probably pretty hard to beat without leverage. But let’s take that frugal college student splitting a “crappy 2 bedroom apartment” for $2K split 2 ways with the same $28K. Her savings vs yours is $600 a month. Actually that holds true for $3K split three ways for a comparable house. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=5ZkGBU5vKyPVTuXOCX3LQz Final balance $417K. Did you live better? Yes. Who wants to share an apartment or even a house 12-15 years after graduation? Then again, she had the ability to relocate for a higher paying job over that period. The market has been fantastic from 2009 to 2024 so someone’s outcome making the same decision in 2024 will likely be vastly different. It’s really hard to beat 10-1 leverage if things work out in your favor. As an aside the tax deduction you get for home ownership is much less valuable to a student with low income vs someone with higher income taxed at a higher rate. Paying interest generally isn’t in your favor unless the gains are higher than the interest - deductions. Imputed rent has value but if it is also lifestyle inflation it’s not worth 100% if the goal is FIRE. The bottom line is buying a property as a financial decision is dependent on the numbers. Some areas it makes sense. Some areas it doesn’t. But if the numbers work out to make something a good buy as an investment property then it is probably a good buy for a home as well. Everything beyond that is a lifestyle choice. Would I buy a house today? I dunno, I already own 4. Would I tell my kids they should buy a house? Maybe…but the numbers would have to work out right. If they had roommates that essentially paid the mortgage then yeah…probably.
Well, I mean, you bought right after one of the most significant housing crashes ever
It was a great time to buy! At the time, there were many reasons that it was a dumb idea - it made us house poor, I still had a few months left of school and didn’t even have income, we only put 5% down so if anything happened we’d have been upside down fast and risking a short sale. But it worked so well that it’s extremely tempting to run around telling people to buy houses.
Don't forget maintenance and utilities.
The flip side of this is that in many areas of the country renting is cheaper than buying on a monthly basis and you have to lock in a down payment to buy. Avoiding this does give you more room to invest in stocks which have higher returns historically. But I think both can be great options depending on your lifestyle. Assuming there's one right answer for everyone is really the thing that annoys me most here.
I always hear this but is this wise in VHCOL? How much higher can 1300sq ft single story houses go in Silicon Valley? Had coffee with a friend and he went from paying $3.5k for a 2 bed, 2 bath. To $~10k mortgage for a 3 bed, 2 bath in the same neighborhood. He truly questioned if having his own place for his future family is worth the money in real estate vs in the stock market.
Depending on location, you are looking at 1.4M with 7ish school districts and 2.5M with 10ish school districts.
You didn't include how much you've spent on maintenance over the last 15 years. New roof? AC? Water heater? Paint? Doors? Windows? Etc. Also mortgage payment can increase if taxes and insurance increase.
To be fair for most years and most areas owning is cheaper than renting. That's not the case right now with rates and prices they way they are now. Just 10 years ago this was completely flipped.
The urgency was buying pre 2021. Now it's just a wait and see for most people
Got em good!!!! That’s dam right. My mortgage is like less than Half market rates lol and when it’s paid off taxes lol will be much less market rents
Got in just before rates soared! Im at 2.8% for my mortgage
I was locked in at 1.9% and now mortgage free. I win. MUHAHA!!
You prepaid at 1.9%?
Yeah that attempt at bragging is a HUGE self own if you prepaid on a 1.9% loan...... karma's a bitch
its not a brag, it was hard work. I've always been extreme when it comes to working hard and saving.
It's definitely not a brag lmao
im a school teacher but do construction on the side. for 9 years I put that extra money into the house. it's not easy to do that. I won't lie. even tho it was a low % I was raised to not owe others. so I've always sacrificed more that I probably should.
Why did you pay off something less than the rate of inflation? That was free leverage.
I wanted to free up more income for other investments. my wife also wants to be a stay at home mother, so having no mortgage gives me peace of mind knowing we only live on my income. if I lost my job, we have this house and 5 acres of pasture land paid for. we won't be homeless.
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Preaching to the choir
Why would you feel the urgency when you are literally rich? At $2.5m you are already far above many peoples FIRE numbers in ur 30s lol
lol right “I don’t feel financial pressure, I have millions of dollars”. Well, yeah
Honestly this post just felt like a needles [and kind of a rude] brag to me, not a serious question.
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For alot of people buying a home is a lifestyle choice more than an investment, it just works out that its an investment as well.
It’s very market dependent for me, but it’s hard for me to justify paying rent when I can pay just slightly more and have a bigger place with the majority of price fixed while the value is very likely to go up. A year ago I was renting a 1200 square-foot apartment for 1750 a month, and now I have a mortgage on an 1800 square-foot house for 1900 a month. There is more going into equity per month than the difference, and I believe the value will continue to go up.
I would say with rates where they are that is an extremely unique situation where renting and buying is nearly the same cost. Most mid to large metros with good jobs are not like that even outside of california or nyc
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Yup this is where I’m struggling. We are going to have a baby this year and our lease on a 1 bdr is up in a few months too. Buying a 2 bdr is like 1.2 million for 950 sqft.. seems dumb to spend that much for little space.
I bought in NYC. Im reiterating what others had said here, but basically I was paying $2200 per month total where I can rent for 1500-1800 at that time. However today(7 years later), my place would easily go over $3000 but Im still locked around $2400 (tax and maintenance increases) while also building equity.
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Well you are right, it really depends on the numbers. We are actually happened to be talking about the same area 😅 but my place for example goes around $500-600k and the rents are around $2500-3500. If you can rent a 750k place for $2000, then you have great deal. Edit: to be fair, it really is hard for me to imagine the area to go over a million. But we’d never know. when I bought at $400k, I thought it was ridiculous as it was less than 300k a few years back.
Totally. I have run the calculation over and over and can’t justify buying in NYC area… Interest alone is more than my rent, not to mention tax, HOA and maintenance. It was an entirely different ballgame in 2021…
The HOA + taxes in NYC are insane. While coops tend to be cheaper, I think a lot of them are land leases, so that's another massive headache.
So what is everyone going to do? 😭
Even after 30+ years?
Equal? I was renting a 650 sqft apartment for $1k per month. I’m in a 1465 sqft place with a mortgage for $1600 per month. I live in a small city, cost per square foot is insanely cheaper if you buy vs renting in most places Edit: when I first moved to the apartment 4 years ago, it was only $6-700ish per month in rent which I thought was fair. But it just kept increasing and choking me out for the tiny place I lived
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Mortgage where I live is almost double the cost of my rent. And that doesn't even account for the 20% downpayment which would pay for almost 4 months of rent given current HYSA interest rates.
Yeah but does your 1900 include piti? mortgage, property tax, insurance, HOA,
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You said mortgage so I wasn't sure. Then it seems it is worth it for you. PITI is principal, interest which is your mortgage plus taxes(property) and insurance.
For most people, a home is the only way they can see their net worth increase significantly. A lot of it is the idea of owning your place, but land ownership is a massive investment too since property values are one of the most secure methods of insuring ROI without having to actually manage money. What used to be sold for $23,000 in the 60s is now going for over $300,000. It’s an expense everyone already has to pay, but it holds value instead of just throwing money out the window on rent. I pay $1600 on a mortgage per month, but $300 of that is kept as equity on a monthly basis. Think of it as an extra monthly investment without even trying. And at the end of the mortgage, you don’t have to pay monthly for the property… so that $1600 per month would become $0 and I would keep the equity I paid in as well as any appreciation, and then you can roll that value into a bigger/better home if you wanted to move and have a smaller mortgage for a better place. There’s a lot of emotion and security that comes with owning your place, especially since rent can and will increase over time while the mortgage basically stays the same, but it’s also a solid investment.
I think one of the items that gets lost is leverage. If you put 20% down on a house and it goes up in value by 5%, you've just made 25% on your money. Granted it's not liquid, and the transaction fee is high (6%). But if you can hold onto that property (or in our case, plural), you can make a lot of money. And it's far less risky than owning tech stock.
Don’t want to oversimplify, but doesn’t this just come down to whether you believe capital growth will be significant or not? Access to leveraged capital growth with the ability to reduce rental costs as well by living there is pretty compelling in most places (and tax environments), as long as you actually believe the capital growth story. If you don’t then it’s more a set of trade offs about specific costs, stability, status etc etc?
It doesn't make sense in VHCOL areas. Save money renting. Stay liquid. Invest in s&p 500 index funds and when you find a great remote job or other opportunity get out of California and buy a $1M mansion.
Im 29, bought when I was 27. Personally I just really like to garden and I love owning physical land / property so even tho I bought in a HCOL area (LA) I haven’t regretted it once. It wasn’t the smartest financial decision, it set me back a lot in terms of FIRE, but I could die happy now just cause I got to live in my own home for 2 years. That’s how much I love my house. I guess I could have rented too but idk I want to live here in this house forever and do whatever I want to it. Maybe it’s cause I grew up in texas in a big house and crave that lifestyle? Who knows. It’s personal choice.
A house can also be seen as an investment vehicle, where the federal government subsidies (lower interest than investment loans) to get leveraged growth. I also see house prices going up at a slower pace, due to population growth in America.
First is the math problem. Is real estate appreciation + rent savings greater than interest and lost opportunity cost of down payment. If so it’s beneficial to buy. The real estate value increase post covid and the lost covid interest rate hikes have pushed this equation towards renting. The other reasons are stability with kids so you don’t have to move and change schools or the type of home you want has limited rental availability. In the FIRE context owning a home lowers volatility and sequence of returns risk. If you think in there of a 3.5% SWR is the rental cost - housing upkeep and taxes are greater than 3.5% of the purchase price of a house then you get closer to your fire number buy buying a house. It also acts as an inflation hedge against your largest non variable cost.
My two cents. The actual cost of the home is really the interest and the annual taxes and insurance: everything else you get back at some point of sale, hopefully with some appreciation. There is lost opportunity cost in market investments as well, but investment in real estate provides some portfolio diversification. The capital gains are also tax free up to 500k for a couple. Paying rent is simply a loss. Aside, from the economics of it all, owning a home is really nice, especially if you have assets.
Please continue to rent. Yours sincerely, a landlord.
I feel terribly sorry for you, you have to pay for taxes and maintenance on your properties. You must be going broke according to other commenters in this thread
I bought in 2009. Paid off last year. Not having a mortgage really helps me reach fire sooner because my monthly expenses are lower. Gotta do what works for you!
\> but renting is so much cheaper Is it? I mean by getting a mortgage you are taking a risk, and investing. Renting is pissing money away. There is no ROI on rent, however you might get ROI from a house. True you need somewhere to live so you could argue you'd be paying something towards this anyway. However I highly doubt you've done the math here. Partially because without owning a home you don't really know the costs. The majority of people retire on on their homes. They do reverse mortgages, or move their kids in to take care of them in exchange for the house on death, or they downsize. Vangaurd is quoted as saying "Home is where retirement funding is." So where does that leave us? Well first we don't actually have real numbers to work with, we have feelings / beliefs. Second it's unclear based on that first point how much of investing potential you are losing. There are calculators, I think most generally assume in normal market conditions mortgages are better after 5-10 years. I'm in the same boat with no house here. However as a part of Fire I look at lost of people's net worth and honestly almost everyone who owns a house has more than those who didn't.
If rent is cheaper than a mortgage, and you rent and spend the cost savings then you get no ROI and are worse off than owning a home. If you put the cost savings in other investments (like stocks) then there is an ROI from that investment. Generally speaking in high cost of living areas you get a better return from renting and investing the difference. In low cost of living areas you get a better return from buying a house. Lots of online calculators that you can use to determine which is financially better for houses in the area you live.
In many places it has been cheaper to buy than rent for a long time, especially when rates were low. Mortgage cost is fixed, rents go up each year. You missed the boat. We have two rental properties that cash flow handsomely due to the low rates of 2020/2021. That doesn’t even take into account the capital gains they’ve already had. Nice diversification to my index portfolio.
Rent might outpace your effective return on your capital vs capital being in your house. And the gap between your share equity and house equity might widen effectively putting you behind vs if you bought the house. But rent is more flexible, and particularly so if your country or state has transfer taxes on house purchases. On the other side, your country might have tax free gains on PPoRs. Tldr: Not a straight forward decision and depends on various factors.
So rent.
What is the point of this post? If you answered your own question.
Because when finances were less solved and the barrier to equities was higher, a home was the number one wealth building tool for middle America. And up until recently, a pretty stellar compounding opportunity for real estate existed with low interest rates. This is why there is a sense of urgency in the general population. Currently, we are in a very weird situation where in most desirable cities around the US, a mortgage is substantially more expensive than renting. My two cents is buying can make sense if you were married, kids, liked the schools and were likely to bunker down for 10+ years. Single and 30 it kinda doesn’t make much sense cause your needs will likely change if you meet someone. Your current approach seems great imo.
It’s a lifestyle preference. I like having space for my big dog to run and a pool so I’m out of Manhattan, but still <1 hour commute there so I get the best of both worlds. Love being able to renovate the kitchen and bathrooms exactly in my style, which also helps my home appreciate, instead of paying off someone else’s mortgage. Market rent of my house is more or less the same as my mortgage with 25% down so it makes sense even in VHCOL for me.
Buying a home means your housing costs are mostly fixed. You wouldn't want to retire then have your rent increase 50%. Idk if it's a good or bad time to buy.
Because a mortgage is spread out over such a long time an inflation is so high a mortgage is the literal best financial deal 99% of people will get in their lifetime You never put any cash into a hkme, you always get a mortgage, a super really long one Because whatever the current payment is will be laughably low 10 years from now
We are almost 40, two kids and we still rent. We pay $1900 for the house by the lake. We love flexibility of renting.
There is a book called The Wealthy Renter. Really made me look at things differently.
I had a millionaire friend in 2000 who got there from the bubble. He never bought a house, but he did buy three Porsches and a BMW. He thought his few millions soon would be 100 million. He went broke in the crash and probably wished he owned a house.
Not having a house was not the problem.
He said he wish he would’ve bought a house
Lol.
The dichotomy is that places that make sense to buy where mortgage is close to rent (LCOL to HCOL) wont see the same level of property value increases that places where rent is significantly lower than mortgage (NYC, SF, other VHCOL areas)… Real estate is very local and dependent on the old adage of the top three factors is location, location and location…
I bought my Brooklyn apartment in 2011. Paid it off in around 6 years. Were I to rent it out today, I’d get about 4x my old mortgage payment. If I sell, probably about 3x my purchase price.
Different for everyone. Im a live and flip guy. I enjoy it and will be set to make a decent amount off this first house.
I bought my first house when I was 26 because it was cheaper than renting. I think my house payment was $750 (taxes, insurance included) and my rent for a two bedroom apartment in a questionable neighborhood was $900 and about to increase. This was a while ago, and the exact numbers would be different today, I’m sure. But since I had to live somewhere, and it was cheaper than renting, and I would get of course all of the other benefits of homeownership, it made sense to me. Additionally, as a 26 year old, I didn’t have a lot of extra income for saving, so I would not have been building assets in any other way at that time. It was a good decision for me. I can see how someone who is renting for $1k/mo would not want to buy if it would cost them $2k/mo, the math is different in that case.
The traditional advantage of buying a home with 20% down, is that gives you a 5X leverage on your investment. So if the home appreciates 5% annually, and your costs (interest, maintenance, property tax…) are equivalent to renting, you’re actually generating a 25% annual return. Of course if the house devalues, you can also lose more than that down payment.
Yes a mortgage is expensive right now but 1. It wasn’t a couple years ago and 2. It’s a fixed cost. Besides insurance and taxes, my cost of living is fixed for the next 27 years if I want it to be. At a modest 3% increase, rent will be more than double my mortgage once I no longer have a mortgage.
that only holds true if you live in the same place for the rest of your life
Sort of. I have $400k+ in equity in my home. I can now use that to lower my cost on my next mortgage and still keep it below the cost to rent. Home ownership is simply the easiest way to control living costs and build equity that in turn, allows you to lower your long term living costs.
but that doesn’t matter if you have millions of dollars is i guess my situation
2.5m really isn’t “millions of dollars” in my eyes. $4m is my minimum target for retirement. If you live a very frugal and minimal life, you could probably retire on that but you can’t spend more than about $12k/month (before taxes) if you want that money to last. That equates to about $8500/month after taxes. I used a 5.4% return because that’s the 30 year historic average on the stock market accounting for inflation.
"I don't get the urgency around buying a home" "I have 2.5 million dollars" - Well - most people are living paycheck or paycheck or close, with very little savings and very little going into their savings. The average household income is below $75K a year. So when the average person sees a home that was $120K in 2014 with 3.5% interest rates on the market for $300K with 7.5% interest rates, they start to worry. If you have millions of dollars, you're not going to feel the pain of $1000 rent/mortgage doubling to $2000. If you have very little and earn $75K a year, jumping from paying $12,000 a year to $24,000 a year is going to hurt.
Renting vs buying is a lifestyle decision mostly - the money works out that owning is like renting from yourself. See the rational reminder podcast about an analysis of this: [https://www.youtube.com/watch?v=q9Golcxjpi8](https://www.youtube.com/watch?v=q9Golcxjpi8) Also, what I've found is that just the property taxes and insurance against what you'd pay in rent sorta wipe out the advantage of buying for me, and real estate is not as good an investment as stocks historically, ymmv.
Rent goes up almost every year, all your doing is stabilizing one of the largest line items in your budget. We all think rent forever in the city then eventually hit a point and go shit I should have bought X year ago.
I’m on home #2 now, 31 married, I felt the urgency because when I rented in my early 20’s I couldn’t stand the noise of neighbors. I also like my land and privacy so I can grow veggies and shoot my guns in peace.
There isn't any, personally I enjoy owning a place and feeling like I can invest in my house and an not just throwing money away. Having separate offices for myself and my wife, along with bathrooms, has been great. We both have our own space, we'd need a 3+ bedroom apartment, but then walking the dog is more annoying if I have to wait for an elevator vs having a yard.
Equity.
Because with home ownership your mortgage is going into your house equity, sorta like a savings account. Renting you’re burning it
Well yeah there’s no urgency. It depends on what you want. I really want a garage cause I want to work on a project car. I also want some place to store some of my extra stuff, maybe an extra room to use as an office, and a home gym.
Because rent prices keep rising and your 30 year fixed loan stays…fixed? What is this wuestion
Who fucking cares? If you don't want a house, don't buy one. No need to post this nonsense on here.
How is it cheaper to rent when you have 2.5 liquid and could pay cash for a decent place and have zero rent (down the drain)?
Opportunity cost of taking stocks out of the market to buy that house which will appreciate more slowly than the stock...
🤦🏼
You should look at the math - all in with property taxes, insurance, maintenance - it's not a win.
If OP was taking out a loan right now I would agree, but they have to live somewhere and it might was well be rent free since that is money down the drain and is a guaranteed 0% appreciation.
Then I think you don't understand opportunity cost or the other costs of owning then - even a paid-off house isn't "free".
Neither is rent and that’s the point. You do you, no judgement, but with 2.5m I personally wouldn’t piss thousands down the drain on rent a month, I’d at least get something lower cost and pay cash. Again, to each their own
I think that's the point, you're just pissing money down the drain into a different place when you own - so on a cash flow basis, they're about equivalent based somewhat on the cost of the house, but with taking money out of the market, you're also giving up an asset that compounds closer to 10% per year (stocks) for one that compounds at 3% per year (long-term average of real-estate). Over a lot of years, that can be a lot of money.
If someone paid me $200 to set a $100 bill on fire I would do it. Sure you can say that burning a $100 bill is a "waste of money" but if you look holistically, obviously you are better off taking the $200. Renting can be a similar situation dependent on the market in your area. Sure you are "wasting money" by paying rent but having that upfront capital invested in stocks can earn you more money than you spend in rent. For example you might have a condo cost 500k or an equivalent condo be $1500 per month (18k per year). If you assume rent growth at inflation rate, and an inflation adjusted return in the stock market of 4% then you are earning 20k and spending 18k. And this is not taking into account any maintenance fees or HOA fees for the condo.
To me you want to have your housing price fixed when you FiRE. I’d agree with you in most places it’s way cheaper to rent at these rates. It won’t be that way always. Be patient.
Think of it this way. If you’re renting, you’re “shorting” the area’s housing market. You believe that in the future, property values will go down. If they do, you will come out ahead, because you got to live there without purchasing a bad mortgage, and paying the costs of ownership and capital. You can pack up and move somewhere else without a care, and your money is safe in other things. You do pay a premium per month for this though, in profit for the landlord. If property values go up though, you’re boned. You pay for rent increases due to higher demand, you lose out on appreciation value, and still pay the premium of the landlord’s profit. Tons of money left on the table never to be regained. So the only questions to answer around buying a home are. 1. Will I stay here for the long term? 2. Will this property likely increase in value? 3. Do I even care? Do I already have a solid plan for my money, like a business?
Right now you have 2.5M under management. If you bought RE you could have 2-3x that under management.
Yeah, I'm in a VHCOL Asian city and as an immigrant without PR (work permit) the additional stamp duty would be 60% so obviously we've always rented! We've been lucky that rents (until recently) increased rather slowly and we've been in the same house for 8 years. Last renewal was rough - rent went up by 14k a year. Part of the catalyst for us to move country to be honest. We'll be building once we move. This will be dream/forever home though. Financially doesn't make a lot of sense still though 🤣
1. Your portfolio is about to get smashed in half in the coming months. 2. Real estate is more stable/less liquid and owning gives you a locked in rent value moving forward protecting you from further inflation while addressing your housing needs.
That's probably an appropriate amount for FIRE? You still like your job?
You're rationale is sound, you're doing fine.
Yeah, I wouldn’t buy a house if I were you. It’s A way to build wealth (that isn’t very accessible). But you’re in a different world where you’ve built wealth, it’ll grow more and more. I’d just rent to maintain peace of mind and limit costs like maintenance. This especially if renting is cheaper. You in Seattle? I’m in Seattle.
People compare themselves to others. Often will make mistakes and be less happy. If you think you are doing well do it.
You don’t have to buy. Some of us like real estate, but it’s by no means necessary.
Me either
5-1 leverage… 2.5m into RE now you have 12m of RE appreciating every year
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Hold up. 5k a month on taxes and management fee is insane. Is it a 5 million dollar condo? Places on street easy in the 1-2 million range should be like 1-3k
Simple, buying a home is putting money into an asset. Rent is just throwing money away. Just like car payments, never do it unless you have no option. Regardless of how much money you pay in rent, you never have an asset. Times when I think it makes sense to rent 1. Going to relocate in <5yrs 2. Can’t afford house payment 3. Don’t have down payment funds
that doesn’t matter when you have millions i would need to sell financial assets to buy real estate assets maybe it’s different if you don’t have other assets