Renting vs. Owning - Primary Residence

17 Replies

I am trying to way the pro's and con's of renting vs. owning.  I rent currently and do not think it as bad as some people think.  I'm looking for feedback and factors that I may be overlooking.  On the investing side I currently have one rental property and looking to acquire more.

Reasons why I currently prefer to rent:

1. I can afford to live in a higher end area at a lower cost.
2. I do not want to settle down.  Read somewhere that it does not make sense to sell your primary residence until you owned it for 5 years.
3. I don't have to pay for any maintenance costs.  This results in less risk and I am never taking large maintenance expenses.
4. I don't want to buy a primary residence without it being a "deal".
5. Where the "deals" are near me are not places where I typically want to live.
6. I can be agile, no commitment except the lease.
7. Primary residences are not typically factored in when calculating net worth.
8. Don't have to worry about depreciation of my primary residence.  This leads to stability and will keep my rental portfolio growing at a steady pace.

"House Hacking" and doing a live in flip interests me.  But I am interested in what other people have to say about this topic.

I think it really depends on the area! I love personal properties because they add a top of value for me in the areas I buy. I will write my "rebuttal" to why I buy in black below :) As food for thought.

Originally posted by @Rob Randle:

I am trying to way the pro's and con's of renting vs. owning.  I rent currently and do not think it as bad as some people think.  I'm looking for feedback and factors that I may be overlooking.  On the investing side I currently have one rental property and looking to acquire more.

Reasons why I currently prefer to rent:

1. I can afford to live in a higher end area at a lower cost.

In my area the opposite is true. I can buy a "dream" house for $1500 and it rents for $1850 same day :) 
2. I do not want to settle down.  Read somewhere that it does not make sense to sell your primary residence until you owned it for 5 years.

My husband is active duty military. We don't know the word "settle down". I think in our five years of marriage the longest we have stayed somewhere has been 15 months. We are buying our 4th personal in May. While we don't sell them, we do rent them out! We could sell them all and make 10k or so on the sale but our cash flow is much awesome.

3. I don't have to pay for any maintenance costs.  This results in less risk and I am never taking large maintenance expenses.

True but there are a few other thing to think of. 

*You are reliant on your landlords maintenance to how quickly things are fixed. A dear friends stove has been on the frits for a week and they are barely getting around to dealing with it. Yet she can cook when the "stove" feels like working and she has 3 kids. Where as I can fix it intently based on "my" scheduled.

*You can buy newer houses ones with great bones (newer roof, siding etc) therefore mitigating the risks.


4. I don't want to buy a primary residence without it being a "deal".

This is just a mental thing. Stocks now compared to 3 years ago are not a "deal" yet some compared to years ago are. You need to look relative to now and find what works for the numbers. I am haveing this problem now because the areas I have invested have inflated. The question I ask myself does it make sense.


5. Where the "deals" are near me are not places where I typically want to live.

Than they are not deal :)


6. I can be agile, no commitment except the lease.

We are agile because our only commitment is to find a tenant. Our tenants all pay "more" than the lease so we actually do awesome.


7. Primary residences are not typically factored in when calculating net worth.

True they don't but rentals do. Everytime we are transferred our personal becomes a rental. Our personals were bought with 0-5% down and a .5-1% lower interst rates. So I think those are fantastic deals.!


8. Don't have to worry about depreciation of my primary residence.  This leads to stability and will keep my rental portfolio growing at a steady pace.

True! but you also don't experience appreciation. Our portfolio has appreciated 20% in the least 3 years. 

"House Hacking" and doing a live in flip interests me.  But I am interested in what other people have to say about this topic.

 The thing you need to think of is your earning based on cash on cash. When we only have to put 5% down so a 235k house only costs me 13k . My 300 a month cash flow before expenses after mortgage is 28% not including principle pay down, Pretty cool :) That is when we move out. If you house hacked and lived rent free while principle is being paid down and don't have to pay rent. Plus you bought in an awesome area, even it if wasn't 60% of market (honestly our best deal was 20% but we strive 5-20% and now we almost pay market).  The key for us is still acquiring. Again it is your "choice" and goal! Our portfolio with a mix up personal turn investment and pure investments make 25% gross before maintenance and 42% gross before maintenance when you do principle. Even if we had 10% expenses (which we don't). Those are better numbers than "I" could do in the market.

So again, everyone looks at things differently. That's just why, "i" invest in personals,

@Rob Randle after many years as a homeowner, I've recently concluded that I want to be a renter. I think being a landlord that rents their residence is the new American Dream.

I'm a renter because:

1 - I own plenty of real estate an won't miss out on the upside of the market.

2 - I like redirecting cash towards vacations and creating memories.

3 - I love reducing my family's overhead expense and potential risks (water heater breaking, etc.)

4 - Renting gives us the flexibility to work in another country for a few years, one of my goals.

Now it you're just getting started, I'd wouldn't recommend this. I think house-hacking or converting a small SFH from residence to rental is the ninja move of choice.

@Elizabeth Colegrove Interesting, yes I can see how that can be beneficial. I think a lot of it comes down to the down-payment for me. I would like to only have to put 5% down on a house. I can achieve that with a REO home, but typically its 20%. I guess the thought of sinking 20% into my primary residence pushes me away from owning. With renting I'm basically in for a security deposit. I'll keep on the look-out for REO where I can get in for cheap!

Originally posted by @Al Williamson :

@Rob Randle after many years as a homeowner, I've recently concluded that I want to be a renter. I think being a landlord that rents their residence is the new American Dream.

I'm a renter because:

1 - I own plenty of real estate an won't miss out on the upside of the market.

2 - I like redirecting cash towards vacations and creating memories.

3 - I love reducing my family's overhead expense and potential risks (water heater breaking, etc.)

4 - Renting gives us the flexibility to work in another country for a few years, one of my goals.

Now it you're just getting started, I'd wouldn't recommend this. I think house-hacking or converting a small SFH from residence to rental is the ninja move of choice.

Those are good reasons to rent.  It's interesting that you want to rent after being successful in real estate.  But given you goals, its the right choice.  Thanks for the feedback.

Originally posted by @Rob Randle:

@Elizabeth Colegrove Interesting, yes I can see how that can be beneficial. I think a lot of it comes down to the down-payment for me. I would like to only have to put 5% down on a house. I can achieve that with a REO home, but typically its 20%. I guess the thought of sinking 20% into my primary residence pushes me away from owning. With renting I'm basically in for a security deposit. I'll keep on the look-out for REO where I can get in for cheap!

Rob if it is a "personal property" i.e. a house that you plan on living in for 12 months period (the time requirement). Than you can do a 5% conventional. Now if it is an investment that is totally different. I would NEVER put 20% in a personal property that defeats the purpose. When we ran out of first time home buy and VA loans, we did 5% conventional.

how about getting into a owner financed home- use it as a primary residence while you are fixing it up- sell it after 2 years and get tax free profit 

Originally posted by @Elizabeth Colegrove:
Originally posted by @Rob Randle:

@Elizabeth Colegrove Interesting, yes I can see how that can be beneficial. I think a lot of it comes down to the down-payment for me. I would like to only have to put 5% down on a house. I can achieve that with a REO home, but typically its 20%. I guess the thought of sinking 20% into my primary residence pushes me away from owning. With renting I'm basically in for a security deposit. I'll keep on the look-out for REO where I can get in for cheap!

Rob if it is a "personal property" i.e. a house that you plan on living in for 12 months period (the time requirement). Than you can do a 5% conventional. Now if it is an investment that is totally different. I would NEVER put 20% in a personal property that defeats the purpose. When we ran out of first time home buy and VA loans, we did 5% conventional.

I didn't even realize that! I thought you have to put at least 20% down unless its an FHA, even if it is your personal property.

To be clear, I can put a 5% down on a conventional loan? This would make things a lot easier.

isn't 5% only for VA loans only?

yes! You can do a conventional 5% loan (you will have Pmi) if you live in the home. If you have not had an FHA you can do that too. I prefer conventional over FHA but that's me! The Cavout as always you need to qualify ;)

For me it all depends on the tax rate you are at vs your personal finances. Mortgage interest is pretty much the only personal tax "loophole" so to speak for W2 income earners. Since the US tax system is progressive, everyone wants to get down in the lower level of taxation, writing off that $50k or so per year will lower your AGI just enough so you won't get hit with AMT and lose those deductions just because you're considered "rich" at 250k per year :)

Second, it only makes sense if your mortgage + ownership costs (tax, insurance etc) are as close as possible (or lower) to your rent AND you bought in an area that you cross your fingers and hope it will appreciate significantly in next few years. Realize the fact that for first 10 years you will barely pay ANY principal back. That's one big gotcha most people don't realize, you are renting your home from.. "the bank" and you'd better stay in it or pray it appreciates, else it's an expensive rent. On average US families change houses every 7 years while getting 30 year mortgages, that's very expensive rent if your home didn't appreciate.

Regarding the 5% yes, you can, but expect the APR to bump up by 1% or so due to the increased risk plus that PMI added as well. However, gotta lose some to win some. You can remove PMI once the property appreciates so your loan becomes again 80% LTV.

I'm completely in favor of renting over owning, unless it's some kind of smokin' hot deal. The reality is owning a primary residence isn't an investment. The only time it may be is depending on the deal you get and where in the country you are talking about. I'm in LA, so owning here certainly wouldn't be an investment for me. 

Not sure if this article helps, but I talked about this a little in one I wrote awhile ago...

http://www.biggerpockets.com/renewsblog/2014/01/18...

Originally posted by @Bogdan Cirlig :

For me it all depends on the tax rate you are at vs your personal finances. Mortgage interest is pretty much the only personal tax "loophole" so to speak for W2 income earners. Since the US tax system is progressive, everyone wants to get down in the lower level of taxation, writing off that $50k or so per year will lower your AGI just enough so you won't get hit with AMT and lose those deductions just because you're considered "rich" at 250k per year :)

Second, it only makes sense if your mortgage + ownership costs (tax, insurance etc) are as close as possible (or lower) to your rent AND you bought in an area that you cross your fingers and hope it will appreciate significantly in next few years. Realize the fact that for first 10 years you will barely pay ANY principal back. That's one big gotcha most people don't realize, you are renting your home from.. "the bank" and you'd better stay in it or pray it appreciates, else it's an expensive rent. On average US families change houses every 7 years while getting 30 year mortgages, that's very expensive rent if your home didn't appreciate.

Regarding the 5% yes, you can, but expect the APR to bump up by 1% or so due to the increased risk plus that PMI added as well. However, gotta lose some to win some. You can remove PMI once the property appreciates so your loan becomes again 80% LTV.

 thanks for the response, you brought up some ideas that I didn't think about before

Originally posted by @Ali Boone :

I'm completely in favor of renting over owning, unless it's some kind of smokin' hot deal. The reality is owning a primary residence isn't an investment. The only time it may be is depending on the deal you get and where in the country you are talking about. I'm in LA, so owning here certainly wouldn't be an investment for me. 

Not sure if this article helps, but I talked about this a little in one I wrote awhile ago...

http://www.biggerpockets.com/renewsblog/2014/01/18...

 comforting to know that seasoned investors feel the same ways that I do! great article, thanks for the link

Originally posted by @Rob Randle

I currently rent as well but am looking for a duplex to house hack. If I can find a good deal, cut my monthly mortgage payment in half (it would be half of what I'm paying now for rent), deduct large mortgage interest payments, taxes, insurance, expenses, depreciation etc from W-2 for 3.5% FHA loan downpayment, then that seems like it could be a good deal.

Zach

@Rob Randle glad to see someone from NJ. Which area are you from if you dont mind me asking? And Elizabeth hit the nail on the head with her response, but at the end of the day, it really boils down to what YOU want. Sure, renting is an easier way, but there are so many benefits of owning your own property like tax write offs, appreciation, lines of credit, leverage and the ability to defer taxes when/if selling

Interesting older thread. I rent my primary residence and own two other investment properties. For me renting out in the suburbs makes financial sense. It would cost $900k to buy this house and I do not want to tie up my capital and time caring for that sort of place. I would much rather but 2-3 more properties in the city where the $/sq foot is much higher for rentals. 

We pay $1/square foot in rent for our primary residence but we receive $3/square foot from our income properties in the city. Seems like a no brainer to me.

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