<p>The rents may not increase, but I have yet to see the real estate taxes go down. :)</p>
<p>We didn’t make a lot money on our first house, but we sold it for somewhat more than we bought it for. It certainly was not a worse deal than rent, and I loved having a yard and a garden. Our second house even with the ups and downs of the housing market is probably still worth twice what we paid for it. I spent the first 35 years of my life moving every 2 to 3 years, I kind of like staying put.</p>
<p>I think you really need to compare apples-to-apples when deciding whether it makes sense to own or rent. Comparing a 2,000 sf, 3 bed home with a yard to a 1,200 sf, 2 bed apartment in a high-rise in a different neighborhood doesn’t tell you much about which is a better value.</p>
<p>Zillow.com allows you to check a box for “homes for rent” in your neighborhood, and gives all of the comps for the homes, including their own rental appraisal value. The rent for those nearest my neighborhood with similar comps all came in at about what I pay for mortgage/taxes/insurance, with some a little higher and some a little lower.</p>
<p>I don’t have the exact numbers to support this, but…over the past 25-30 years, up until 2007, if you owned a home you essentially lived for free (depending on what area of the country you were in). The appreciation in your home more than made up for the carrying costs of mortgage and maintenance and taxes.</p>
<p>Those days are now gone, and probably won’t return soon. (Depends on how much ink the federal reserve has, but so far they seem to only be delaying the market bottom.) Of course, if everyone takes that view, rents will rise, prices will fall, and owning rental property will start to finally make sense from a current return perspective as opposed to depending on future appreciation to make the investment work out.</p>
<p>dadx: what would you advise young adults just starting out to do?</p>
<p>We used to live in apartments as cheap as we could find. But sooner or later the rents would rise and we’d move. But moving is expensive, even if you don’t have much stuff. You have to factor that in as well. Most homeowners do not pack up and move every two years (Military families aside…). It’s a big hassle as well. They say moving three times is the same cost as a having a house fire…and who needs that? </p>
<p>Having both rented and owned, I have to say renting is like writing a check every month and throwing it out the window. Owning is more like throwing a boomerang. Sooner or later, it comes back to you.</p>
<p>
</p>
<p>I have a young adult just starting out, and they haven’t yet arrived at the house stage. I’d say keep your eyes on the real estate market. Look at how long things take to sell. If you’re in an area where prices didn’t run up a lot, your downside is less. I’d say just rent if you can find an appropriate residence at the right price. Keep saving so that you can afford a house when the time comes. There is going to be a bottom, or at least some support in this market, but it may be longer in coming than anyone thinks. So far, when I hear people talk about holding onto their house until the market improves, I silently roll my eyes. Most of the people who thought they were selling under duress during the past three year are quietly thankful at this moment, and the ones who bought feeling that they were getting a great bargain are kicking themselves. I’m aware of several situations like this…and in two of them, the purchases were made by realtors.</p>
<p>If I have learned any one thing in life, it is that seemingly unsustainable trends go on far longer than you can possibly imagine. And things that have to reverse themselves to the upside sometimes drag on far longer than anyone could project. (Look at the Japanese stock market from the mid 1980s to the present.)</p>
<p>Love the ball and chain reference. Great point especially for young people who are looking at careers that require relocation for advancement. For example, engineering and the oil industry.</p>
<p>Many friends in the oil industry did not relocate because they did not have the money to put into fixing up the house for sale, or the market was so bad, they’d be paying two mortgages, one on the new house at the new jobsite, and the other on the house that wasn’t moving.</p>
<p>I have also found that when you buy a house, all the sudden, everyone wants to give you their stuff. Hey, you’ve got the room, take my old dining room table that used to belong to Aunt so and so. Because of sentimental reasons, you don’t want to turn it down, but you soon become like an episode of Hoarders, with everyone’s discards.</p>
<p>I think this played a big part in my not ever feeling “attached” to my home. Husband and I never went out and bought our own furniture, as the inlaws, now that they had an empty nest, gave us the furniture passed down through the family, relatives we did not know. Can’t complain, though. After buying the house and fixing it up, even the newest home requires repairs, it was nice to not have to pay thousands of dollars on furniture.</p>
<p>But I do miss those days of the one bedroom apartment, my two little cats from the SPCA, and our cinder block shelves. Life was so much simpler then.</p>
<p>
I am a landlord, and if you are a smart landlord, what you get in rent has very little to do with the expense side of the equation. Rents are driven by market conditions - supply, demand, location, and condition. If you under-price, you are leaving money on the table. If you overprice, you won’t be able to rent your units.</p>
<p>Landlords who set their rent by adding up expenses and adding a profit are almost always either underpricing or overpricing their rents. If you are setting your rent this way because you need to make a certain number, you have probably made a poor investment.</p>
<p>You have to do an analysis before you buy the place - what rents can you get, and are they enough to turn a profit. If the answer is yes, you go to the next step. If the answer is no, and you buy anyway, you will not own that property for long. Which creates buying opportunities for other people.</p>
<p>Another downside to renting these days - if the owner goes into foreclosure, it is almost 100% that you will be kicked out, often with short notice.</p>
<p>^^^Excellent post, notrichenough. Always wondered about how people who bought houses and rented them out figured out what to pay when buying, what to ask for when renting. Thanks for the insight. </p>
<p>And wow, scary stuff, if your landlord gets foreclosed on. Never thought about that.</p>
<p>Thanks!</p>
<p>It’s really a fallacy when people say renters pay property taxes. They don’t plain and simple.</p>
<p>Notrichenough explained it well.</p>
<p>The other way to explain it is say you own a fourplex that has property tax of $4000 each year. You rent all four units out for $5000 a year each. But one year, you can only rent one unit. Do you increase the rent of the other unit by $3000 to a total of $8000 because of property tax? </p>
<p>If you try, the renter will probably move out because they won’t pay $8000 for a unit that is only worth $5000.</p>
<p>So no, renters don’t pay property taxes.</p>
<p>^^^ notrichenough - Is it true? That the best route to a million dollar real estate portfolio is to start with two million dollars? (jk)</p>
<p>My niece bought a condo when she started her first job. She got transferred. Bad market, so she rented the condo. Didn’t like the long-distance landlord thing so she put the condo up for sale. Realtor said the condo would be easier to sell with no renter in it, so she kicked the renter out. Two years later, the condo sits empty and unsold. The point of this story is that young people often don’t have the “street smarts” to know what a good real estate decision is. I’d recommend renting for a few years.</p>
<p>There are a lot of financial benefits for a younger person to rent.</p>
<ul>
<li><p>You don’t have surprise maintenance costs. Paying the plumber $200 to fix something is hard to swallow. Plus, a young person probably owns a less reliable older car thaat also needs surprise work done to it.</p></li>
<li><p>You don’t have to fret about how to fix and maintain things.</p></li>
<li><p>You can easily move when you meet someone, want to move someplace else, or change jobs.</p></li>
<li><p>You can live close to work easier if you rent, because you can move if your job changes or are less likely to mind living near work for a short while.</p></li>
<li><p>No down payment, no closing costs, very cheap to move in. easy to move out.</p></li>
</ul>
<p>I don’t think I’d recommend renting forever, but it’s a great option to start for most.</p>
<p>Like every other investment, whether your house pays you depends on how wisely you bought it. We bought at a market low, at auction and even in this downmarket, when we sell we will have made more profit on the house than in the stock market. </p>
<p>At least with investing in a house, it will never be worth nothing. Which is more than you can say for GM stock, Lehman Brothers, etc. etc.</p>
<p>
</p>
<p>Not exactly. When you buy a house and have a loan on it, and it goes down in value, you can lose 100% of your equity. </p>
<p>All of these houses that people bought that went down in value are worthless to them because they have equity, just like GM stock, Lehman Brothers, etc, etc.</p>
<p>One thing that hasn’t been mentioned much is how much rental inventory there is where the person wants to live. We have friends who rented out of necessity for decades. They just couldn’t find the right place & didn’t have enough for a down payment. They were forced to relocate every few years as the places they rented were being sold by the owners. It seemed they moved every two or three years. By contrast, we lived in one apartment for about seven years, bought a house and have lived there ever since. </p>
<p>We don’t see our place as an investment as much as where we have and intend to keep living. We COULD always rent out a room or build a studio and rent it out, as some neigbhors have done. Maintenance expenses as things age, property taxes and insurance are just part of the costs of owndership that have to be factored in. </p>
<p>Our S is planning to rent when he starts his job because he does plan to return to live in HI at some future date and prefers to keep his options open. He also knows very little about the area where he’ll be working. My niece’s then-BF bought an apartment when they were in law school. He lived there & after they were married, they both lived there for a short while. They decided to sell it & buy a house. They had to take a loss on the apartment that they had spent money fixing up, so they could get out of the loan & buy the house. Housing is not a safe short term investment.</p>
<p>I agree that with tenants, they pretty much pay what they are charged. Most rentals are priced at market rates, though some landlords do charge below market rents and are able to keep their tenants for a very long time. Do not know many who charge above market rates and get long term tenants. As a landlord, if the return you can earn by renting out your rental property leaves you with negative cash flow, after a while you may decide to sell the property & stop being a landlord, with the headaches that go along with it. Have seen this quite a bit as well. It is not easy to pass all increased costs of being a landlord on to tenants but it can affect rental inventory.</p>
<p>notrichenough, I bow to the expert. I think I was assuming that owners followed this step:</p>
<p>
</p>
<p>So you do the projections for what property taxes and trash fees and the rest might rise to. You look at maintenance costs, and typical vacancy rates, and allowed annual increase in rates, and you project it out over a decade or two or whatever horizon you’re using. In which case the property taxes etc etc are included, over that long term. At least, that’s the way I’d do it. Which may explain why we’re not landlords. ;)</p>
<p>We bought my wheelchair bound mother a house with the proceeds from the sale of the family home. My siblings looked at it as an investment. When mom died, we’d sell the house and split the proceeds. But when mom could no longer live on her own in the house, there was the intent to rent it to keep it as income. But no one was willling to bear the responsibility and hassle of being the landlord, so the house was put up for sale. We bought at the height of the market and sold at the valley of the market. Looking back now, we were lucky we sold. Although we lost a quarter of our investment, and we thankfully paid cash, at least we are no longer paying insurance, taxes, maintenance, utilities. </p>
<p>It is definitely what the market will bear. In our area, insurance costs are very high, so if you want to recoup your insurance alone, you have to factor in about 5 to 800 a month. Well, that’s what most people want to pay in rent for a small house in our area. So, you either rent the house at a loss, to keep the house around as an investment, like homeowners do, or you wash your hands of it and chalk it up to a bad investment, like we did. Apartment rents, on the other hand, are no more than 1500 a month, for a really nice apartment, with security, free repairs, so in our area, it is better to rent than buy.</p>
<p>However, we have lots of young professionals who come to our area for college and get jobs here. They buy condos for twice what a house goes for, so they can be close to their work and in the city, with all its hustle and bustle and excitement. But I often wonder what happens to those youngsters when they finally get married, have a family, or even want to relocate for a better paying job. Do they relocate still owing on their condo, as it sits empty waiting to be rented or sold? What happens to that debt, and does that prevent you from buying a house in your new location, not just because you can’t afford it, but does it disqualify you from getting another loan?</p>
<p>Being a landlord and property manager is not for the faint of heart–it takes work to screen tenants, get them to pay in a timely manner, pay all bills, keep the property well maintained, etc., especially for aging properties. Some people are up to it & can handle it all themselves while others flounder and/or get property managers who can be awful, excellent & everything in between. Real estate is not that easy of an investment and certainly not without significant risk, but if you are willing to work AND can spend the time & money, it can pay off handsomely.</p>
<p>My husband and I are deciding on our next phase of life (preretirement/retirement).We have entertained and are seriously considering the idea of selling our home, moving and renting for a while to be free from any major investments/commitments. We of course want to move out of our current state to another state. We will probably never stop working, but renting will allow us to explore the area, where we move to and, develop a taste for the flavor and culture then take it from there. And that may mean continue to rent or buy. But definitely, we are not selling our home just to buy another one. Whatever, it is it will have to be one level and low maintenance.</p>
<p>If 200 dollars for a plumber to fix something is hard to swallow then you shouldn’t own a house. Plain and simple. If your budget is that tight and you have no savings to cover unexpected expenses, then you should be renting. I’m 28, I’ve owned my house over 2 years, and I like to keep at least 5k in my “emergency fund” at all times. I had to take 200 dollars out of it last week for a plumber. Now I have to pay myself back 200 dollars. It’s there for me to borrow against, not take and take and take. I had to take $1500 out of it when something unexpected came up about a year and a half ago. When I got my income tax refund that year, I paid myself back the 1500 that I “borrowed”. When it comes to home expenses, I am my own bank. Knock on wood, I haven’t had any car expenses. Sooner or later it will be time to replace my car… but that won’t be coming out of my emergency fund. That will be coming out of my regular bank account that I use for transactions.</p>
<p>I also put 50 dollars each pay check in my vacation fund, and I’ve been contemplating doing 50 dollars each paycheck into a holiday type fund. I can divy up my accounts for various things.</p>