
Is It Better to Rent or Buy? - bane
http://www.nytimes.com/interactive/2015/06/17/upshot/100000002894612.app.html?smid=fb-nytimes&smtyp=cur
======
codegeek
I bought a house 2 years ago. I bought it to "live in it" and not for
"investment" (US East Coast for context).

The thing is that when you start buying houses/apartments/condos/townhomes to
make money, that is when you _could_ get into trouble.

Make no mistake though. Owning a home is very costly depending on the type of
home and area. For example, my single family detached home costs me money for
things like maintenance, repairs etc that come out of my pocket. Did I forget
to mention "Property Taxes" ? In NJ, it can easily be over $1000 per month for
a single family home worth 500K (yes it is not a typo. It is over $1000 _per_
month). You are paying for all the schools and other stuff that you have
access to.

So don't buy a home just for financial reasons. Buy a home if :

\- You want your "own" place and not worry about landlord bullshit (i hated my
landlord charging me bogus cleaning costs once the lease was over. fuck that)

\- You are not looking to use the house as an ATM or credit card. Try to
refrain from Cash out refinance type of offers. Don't get fooled into getting
cash for another reset of your mortgage.

\- You intend to live in the area hopefully for 5-7 years (ok things can go
wrong but intention should be there)

\- If something happens for the worse, you can still sell it (hint: don't buy
in an area where it is hard to sell)

\- Very important: Put at least 20% down. There is a reason this is preferred.
It gives you instant equity which means if the price fluctuates a bit (7-10%)
down, you are still positive in case you had to sell due to unforeseen
circumstances. I know it is the American dream to own a home but people trying
to buy with 0 down or even 5% down are inviting trouble in today's market at
least. Try not to do that. Wait until you have the down payment.

Some more tips for rookie buyers:

Know the differences between buying say a condo vs a single family detached
home. I personally don't like condos or even townhomes because of their
stricter community rules/HOA crap that they charge you for. I was looking at a
condo once which said that they don't allow outdoor bbqing unless you get
permission. WTF. sorry, not for me. I want "feedom" to do things in my home.
So for me, single family is the closest option. But for you it could be
townhomes/condos for other reasons. So know the difference.

~~~
Someone1234
This is a great case (for and against) owning a home.

I'd like to add this is also why HOAs are worth avoiding. Imagine owning your
own home but losing the freedom to do whatever you want with it and now having
to put up with HOA bullshit instead of landlord bullshit.

They can also take your home if you get behind on your HOA dues. And fine you
for rules they can create on a whim (and take your home if you fail to pay
fines).

The disturbing thing is that the number of HOAs and the % of cities they
inhabit is growing rapidly. Many developers create HOAs during development to
keep the area looking nice until all the properties are sold off (and as soon
as that happens the HOA is run at the whim of whomever picked up the rains
from the neighbourhood).

Ultimately HOAs are anti-freedom, but nobody bats an eyelid because in the US
only "freedom from government" is taken seriously, while freedom from
employers/companies/organisations is all but ignored as a social issue. It is
disturbing.

I just hope that for anyone unfortunate enough to live in a HOA area, they
have non-crazy/non-sleazy people running the HOA. I also encourage everyone to
get involved in their HOA otherwise risk getting bonkers rules passed by some
nutjob who moves in and wants grass within 2 cm.

~~~
runamok
The problem is you are probably going to live in your house for 5 to 30+
years. There is not guarantee the sane governance your HOA provides today
won't be insane next year.

I am thinking of buying a house in the coming years and plan to avoid HOAs
like the plague.

~~~
ghaff
As others have said, there are sane ones and insane ones. Sometimes you need
them. Where my dad lives, for example, there's a shared private road and the
maintenance/plowing of that has to be managed. One could certainly not live
there, of course, but you really have no way to avoid some sort of HOA in that
circumstance. (In general, it's probably also true that the more space and
separation you have from your neighbors, the less need for a HOA to mitigate
conflicts and standards. Tall fences make good neighbors and all that.)

~~~
dpark
An HOA could be structured such that it only has the power to do specific
things. Need the HOA to maintain a shared road? Structure it such that
maintenance of that specific road is all it can do, and all it can raise fees
for. Also set it up so that changing the HOA responsibilities requires a
unanimous vote.

The real trick to having a good HOA is probably structuring it such that it
cannot morph into a bad one.

------
cko
In a way, you're always paying "rent". If you buy, you pay rent to the bank
(principal and interest) for 30 years and rent to the government (property
taxes) forever. You also pay utilities and insurance, maintenance and
improvements. Homeowners tend to spend money on renovations and stuff, which
is a hidden cost.

Then there is the psychological cost of ownership, which to me is a mental
burden knowing I have debt.

The way I see it, there's no such thing as ownership. You're always paying
someone. Suppose you own your house free and clear - can you paint your house
pink? Can you have a collection of junk cars on your front lawn? (The
neighbors will complain.) Can you build a patio? (Not without a permit.) Can
you blast music really loud?

I recently bought a mortgage note (which makes me the lender) and let me tell
you, as much as the homeowner thinks she owns the property, in my mind I have
all the control.

Just my two cents, from the perspective of being a lender and a landlord. And
yes, I rent.

To me, the only time it old make sense to buy a house is if I would buy it as
an investment. Or if I have a family and the price is right. Personally, I
value flexibility and less stress.

~~~
bane
> To me, the only time it old make sense to buy a house is if I would buy it
> as an investment. Or if I have a family and the price is right. Personally,
> I value flexibility and less stress.

You are comparing two different kinds of things, financial sense and the
intangible sense.

Over a lifetime, renting _almost_ never makes financial sense.

Renting can have some benefits, but they tend to be intangible ones.

~~~
cko
I agree with you 100%, thanks for pointing this out.

Some intangible benefits do translate to financial benefits, though. Like as a
homeowner you are more likely to pay for costly renovations. And this is a
guess, but people tend to buy a more expensive place than they would rent. And
renting closer to places you want to be might save money in travel, commute,
etc.

~~~
bane
> Like as a homeowner you are more likely to pay for costly renovations.

Renter pay for those costs also. The money has to come from someplace. It's
simply amortized over a longer period. For a property owner they have to
swallow it at once.

It's a _really_ common misunderstanding on the part of renters that they
believe their rent only covers the right of existing in a property. It covers
all the costs of the property owner (and likely makes them a _little_ money
extra).

However, let's suppose you're in month-6 of a 1-year lease and the owner
decides to renovate the roof or something. You're protected from paying for
that until your lease is up. But this is one reason why rent goes up over
time. You, or the next tenant will eventually end up paying for these things.

------
xahrepap
This is interesting data to me, because it shows me that I made the right
choice to buy instead of rent a few years ago. In the area I live (based on
the limited looking I've done and talking to friends who do rent), it's not
uncommon for rent to be higher than what I'm paying for my mortgage +
insurance, for a smaller place.

I would like to see an similar interactive app for determining if I should
lease or buy a car. :)

~~~
colinyoung
There's no app because:

\- Cars vary widely in how they hold value (for example:
[http://www.autotrader.com/research/article/car-
news/209232/2...](http://www.autotrader.com/research/article/car-
news/209232/2013-nissan-leaf-resale-value-forecast-lowered.jsp))

\- Cars will always depreciate, houses will often _appreciate_

\- Leasing is almost always the poorer choice, barring basically the one case
where you know you will need a car for the lease term only (and will not be
getting another car afterward)

~~~
Domenic_S
Leasing is always worse unless you prefer to have new cars every 3-5 years. If
you need a car for the length of the lease term only, it's better to privately
buy a 5 year old Corolla/Civic for $12k and sell it 3 years later for $10k.

------
rgbrgb
This is a fantastic analysis, but one also needs to think about the less
quantitative benefits of home ownership. Owning a home gives you equity in
your community because your economic outcome is tied to the neighborhood. In
fact, home ownership rate is tightly correlated with reductions in crime rate
[0].

As a renter in SF, I feel more like a tourist than a resident -- I don't care
very much about the schools my kids will probably never go to or a lot of the
far off political issues that will probably never affect me. I'm a young
programmer and don't really have roots here. I think it would feel really
different if I owned my home.

Home owners, did buying change your sense of community?

Disclaimer: My company Open Listings (YC W15) is trying to make it simple and
more affordable to buy a home [1].

[0]:
[http://ecedweb.unomaha.edu/neba/journal/EBJIP2009NiDecker.pd...](http://ecedweb.unomaha.edu/neba/journal/EBJIP2009NiDecker.pdf)
[1]: [https://www.openlistings.co/](https://www.openlistings.co/)

~~~
bane
I can say that it did. I definitely became far more interested in using my own
agency to define a nice place to live. When I rented, if a guy 2 buildings
over was robbed, that's somebody else's problem. As an owner, I'll call the
police the moment I know it will help keep my area decent.

We're actually going through a mini-crisis where I live as young kids who grew
up here are now turning into teenagers and starting to do teenager-y things. A
few minor crimes have occurred recently and as a result of citizen interest,
the police have been out in force and even made some arrests.

Keep in mind, this level of crime, which is a big deal in a decade here, was
weekly where I rented, and I didn't rent in a bad area.

------
mfringel
Showing the sensitive and non-sensitive variables as a greyed out bar graph
"behind" the slider is a brilliant bit of data visualization.

------
Simulacra
I made the decision to buy my first house a year ago and just closed on it two
weeks ago. For me it was less about the cost, although that was the genesis of
the idea. I lived in Northern Virginia and paid $1,700 a month for a basic two
bedrooom, 25 miles from DC. When my complex told me they would raise it soon
to $1,800, I said enough. I moved to Atlanta and found rent in a better place,
better amenities, etc. for only $1,100. I knew buying a house would be cheaper
in the long term, but what really did it for me was the oppressive rental
companies. My lease forbade people from staying at my apartment for more than
3 days without being added to the lease. Traffic and parking was horrible.
Noise was horrible. What really pushed me over the edge was the constant
having to be on guard from the ever present, ever spying leasing office.

I now pay only $130 more per month than I did living in an apartment, but it's
the freedom that I think is the real benefit of buying a home. That and triple
the space...

------
jodah
After the housing bubble I kept a close eye on rent/buy metrics and spent
several years renting while watching many friends crash and burn after having
bought. But aside from the financial aspect, it's hard to overstate the extent
to which renters get treated like second class citizens.

When a housing situation goes south and your only recourse is to uproot and
move, you're not exactly in an advantageous situation. I had the misfortune of
renting from someone who more or less turned out to be a slumlord and whom I
had to take to court to get my deposit back from after deciding to leave. The
tenant laws were luckily very clear. A landlord needed to prove the condition
of the property is what they said it was before and after, which in my case
they couldn't since the damages they claimed were fabricated. But to my
surprise, the judge, when considering the he-said-she-said nature of the
dispute, ruled in favor of the landlord "by default", as she said, even though
the law is very clear on where the burden of proof lies. I could have
appealed, but by that point I had moved out of state so it wasn't worth the
hassle.

When I eventually did buy a home, the lender required a letter from all of my
previous landlords stating that I was a tenant in good standing, even from the
slumlord, who I can assure you was not interested in doing me any favors. No
amount of discussion with the lender could move them on this point, and it
looked as if I was not going to be able to get the house. The situation was
saved when, at the 11th hour, I quietly received the needed letter from the
slumlord's wife, who was apparently more sympathetic.

The idea that the absence of personal letter from an indifferent slumlord
could prevent me from buying property was insane, and the entire ordeal,
including the court judgement, highlights the extent to which property owners
are held in higher regard than renters, as the judge said, "by default".
You'll find this to be true in so many situations...

~~~
bargl
Just bought a house, and this is why it's very important to shop around
lenders. I had a great guy, but if he'd asked for this information I'd have
said no I'll find another lender. Even if this meant I might loose the house.
And unless you are 10 days or less from closing you can find a lender to work
with in that time frame.

Edit: that isn't to say you didn't do your due diligence, just adding my two
cents. You might have done a great job researching and still been F-d. It does
happen.

------
bshimmin
If you buy a house and pay off the mortgage, once you're older and don't want
(or aren't able) to work any longer, you can live in your house for the cost
of your utility bills. If you don't own a house, you still have to pay rent.

~~~
delbel
You're going to be in a big surprise when your property tax bill comes to
mostly fund trillion dollar public retirement pension accounts. Property taxes
of typical city can run up to $200 or $400 a month.

~~~
OneOneOneOne
Rent will increase to reflect that change.

~~~
log_n
But when you rent you have the option to move to another city if you don't
like how your tax dollars are being managed. Especially when you are
retired/unemployed and thus don't have to worry about living close to your
job. You don't even have to move far necessarily depending on the type of tax
you are trying to avoid.

~~~
vonmoltke
Moving is a very disruptive life change, becoming more disruptive the longer
you have been at your current location. It isn't something to be undertaken
lightly, so it would probably take a significant move in property taxes to
induce one to move.

~~~
subsection1h
Moving isn't very disruptive for me. Since 1995 I've moved once every couple
of years and have lived in 6 states and 12 cities. Working remotely has made
this super easy.

~~~
vonmoltke
First, you are the exception. Second, moving frequently actually makes it less
disruptive to a point because you are not sinking deep roots in one particular
area.

------
pitt1980
The option to even rent seems mostly like a large coastal metro phenomenon to
me

Outside, LA, SF, DC, NYC, maybe Chicago or Philly where are all these stand
alone houses for rent?

serious question

outside of major markets I don't percieve the rental stock of nice, stand
alone homes with yards, being paticularly large or liquid

isn't the rent vs own always a bet on the relative size of the rental stock vs
available for sale stock?

if I wanted to rent a $250,000 4 bedroom home in somewhere like Westerville,
OH, how many options am I really looking at?

\---------------------------------------------------

[http://www.homes.com/rentals/westerville-
oh/?beds=4](http://www.homes.com/rentals/westerville-oh/?beds=4)

looks like there are 4 houses that meet the critera having 4 bedrooms (and
Westerville is actually much larger than most suburbs)

951 Brockwell Drive, Westerville OH, 43081 will cost you 2,000 to rent

zillow say the house is worth 231K

if I'm putting down 30K, and taking a 200K mortgage at 4% interest,
[http://www.mortgagecalculator.org/](http://www.mortgagecalculator.org/) says
I'll pay $1,194.41 a month

where are all my savings from renting again?

\---------------------------------------------------

I'll buy the argument that it makes sense in major cities, especially in
markets where flippers drive up the costs

and also for people who would be buying attached properties

I'm not really that impressed with the argument for suburban stand alone
properties in flyover country

~~~
lthornberry
I live in flyover country, and rented single family homes here with no problem
until we finally bought a year ago. It's true that there's a smaller stock of
rentals, but there are more than your example suggests. I'd bet that there are
lots of rentals in Westerville, OH that aren't coming up in your search,
because they are rented through other mechanisms (anything from Craigslist to
a sign in front of the house to locally-specific websites). It's true that
fewer people are looking to rent, because buying is more accessible to the
median family here than on the coasts, but renting is absolutely a thing that
people do.

Also, mortgage is REALLY not the only cost of home ownership. I own a house
worth about $200,000. My mortgage payment is about 850/month, my taxes are
about 550/month, insurance is 60, and I budget 300/month for maintenance. It
would cost me 1600 to rent an equivalent house, so I'm paying more on a
monthly basis to own than I would to rent. Some of that is equity, true, which
is why we bought. On the other hand, when/if we sell, we'll be paying a
realtor $12,000 for the privilege, so we'll have to live here awhile before
the equity gains outweigh the transaction costs.

~~~
OneOneOneOne
You don't mention the principal part of the mortgage payment and the tax
benefit of mortgage interest and property tax.

You might not be paying much more than rent.

------
ernestipark
This tool was huge in helping me make a good financial decision when I was
thinking about housing recently. Hopefully some people at the upshot are
reading this, but I'd love the ability to save searches, and also see all the
data in an excel like pivot table of some sort to see how the different
variables all play together.

------
southphillyman
Ignores mortgage insurance for down payments < 20%

~~~
verelo
It might sound a little sarcastic, but i think in the vast majority of cases,
if you have a deposit < 20% the right answer is to rent.

~~~
riot504
One area where this might not apply is on VA loans; which applied to me.
Currently in PhD program and was able to buy a house with a significantly
lower mortgage (22% cheaper per month) than renting. Which eases the pain for
wife and children during this time.

~~~
desigooner
Doctor loans are similar - they don't need PMI but I'm not sure if the
interest rates are higher than the regular mortgage loans

------
Simulacra
One more thing... I was quite adamant that my home not be in an HOA community.
I'm worried less about artificially inflated property values, and more
concerned with personal freedom. There are a lot of rules and laws on the
books with the county and city as it is, not to mention the state. No one
should have a bunch of nanny neighbors trying to control each other. Not
living in an HOA gives me, the home owner, the most power and control.

------
pessimizer
The home price growth rate is decisive here. If you expect it to be flat or
negative, the scales tip heavily towards renting.

------
t_fatus
I think a good estimator would be the one taking into account the fact you're
probably going to sell your place after some years to buy a new one, because
you wont be able to have any cash if you don't.

~~~
Maken
It does take into account the sale of the house when you leave it.

------
carsongross
What you will notice, after playing around a bit, is how incredibly sensitive
the results are to interest rates and returns on investment.

Good thing those are easy to predict!

------
bane
It's important to understand this isn't a comparison of "can I find an
apartment that's cheaper than buying a house". This is a comparison of like-
for-like housing units. Check your local market, what can you rent an entire
house for? What's the mortgage for buying a similar house look like?

One thing renters often don't understand when making claims about the personal
expenses buyers have to go through to maintain their property is that renters
_are_ paying for those things, it's simply amortized over the period the
property is up for rent. The money has to come from somewhere, and it comes
from the renters.

When a renter moves, there is $0 from their rent that they are able to capture
and move forward to their next property. While an owner can sell their
previous property and carry forward their equity. To make an analogy, it would
be like a renter being able to turn a $1000/mo rent into a $500/mo rent simply
by having paid all the rent on-time at their previous place. This doesn't
happen with renting, but it happens with buying, where a buyer can carry
equity from a previous home into the purchase of a new one and turn a $500,000
loan into a $250,000 loan (assuming the equity they're carrying forward is
worth 50% of the loan amount).

The length of time you will live at a place is also unimportant. You _always_
need to live somewhere. Suppose I need to start housing myself at 20 and die
at 90. I need to sort out shelter for 70 years. By buying a place you pay for
it for 30, then get it for "free" (minus taxes and maintenance) for 40 years.
With renting, you pay for shelter for all 70 years.

You can also rent out your property and make somebody else pay for it. Or rent
out part of it for the same. In most rental markets, you can individually rent
bedrooms for a total that exceeds the single unit rental price for the entire
property.

What about markets where the rental fee is lower than the mortgage + taxes +
maintenance? The property owner probably bought the property when property
prices where lower, or owns it outright or is expecting to capture the delta
when selling the property.

But rent here is so much lower than owning? For how long? If you purchase a
home now, your 30 year mortgage will cost you the same per month for 30 years
(or less if you pay off principal early). Thus a $2000/mo mortgage today will
cost $2000/mo in 30 years. While rent only goes up -- usually with inflation.
It's likely you'll be making more money in 30 years, so while renters will
continue to pay the same share of income on rent, owners will not, their share
of income for shelter _decreases_ over time.

The local property market has to be extremely strange for decades for buying
to ever be a worse idea than renting over the long-run. There are some
advantages to renting, but they're very rarely, if ever, financial over the
long-term.

------
oliv__
The nytimes is really killing it with all these neat infographics and cool
article layouts/animations! Congrats!

------
mathattack
Great calculator! I like that they take into account the opportunity cost, or
foregone investment income.

