Tuesday, May 3, 2016

When to Rent, When to Buy

     As I mentioned in my last post, B and I are selling our family home, and we are thinking about renting a condo for a year or two instead of rolling over our equity directly into a new home.

     The main reason we're selling our house now is because this is a year when we can finally, actually sell it, after a number of years when the real-estate market was pretty dead. The main reason we're planning to rent for a while is because we don't know where we want to go. We have no grandchildren. Our kids are spread out over four states. And, it seems, the two of us have slightly different ideas about the nature of our retirement paradise. So we're taking a gap year to figure out the rest of our lives.

     Meanwhile, I don't know what it's like in your neck of the woods. But here in the exurbia region of the New York suburbs the real-estate market has heated up quite a bit this year. Our house is worth, probably 20 to 25 percent more than it was a few years ago, although still some 10 to 15 percent less than when we bought it at the top of the market in 2007.

One condo we've looked at to rent ... it's pretty small!
     Don't feel sorry for us, though. When we moved in together in 2007, B and I also sold our two old houses, and we paid less for our current home than we both received in selling our old homes. So the consolation prize? We've lost less money than we would have otherwise.

     Also, you have to look at your entire history. Like most of us, despite the Great Recession, I've done quite well over the past four decades since I bought my first home (three bedrooms, one-car garage, a quarter acre) for $70,000 back in 1977.

     What I find discouraging, though, is that when we look at the rental market, everything looks pretty expensive. For the same amount we're now paying for our four-bedroom home, we'd be lucky to get two to three bedrooms, in a neighborhood not as nice as our old one. We're now looking at a condo; the idea is to save money so we can travel. But it seems you get a lot less space, for not that much less money.

     This makes me question some of the current thinking, as represented by this article on TheSreet.com, that renting is cheaper than buying -- presumably because you don't pay real-estate taxes and a mortgage and the maintenance costs. When you're renting, the landlord pays all that.

     But think about it. Where does the landlord get the money to pay taxes and the mortgage and everything else? From the rent. So it all falls back on the renter in the end, anyway.

     One advantage of renting is clear, however. It doesn't tie you down to a particular place. And there aren't many up-front costs compared to all the fees involved in buying and selling a house. The old rule of thumb probably still pertains: rent if you think you're going to move again in five years or less; buy if you're going to stay more than five years.

     So we're going to rent -- because for us it's a temporary situation. One or two years, not five years. Then once we decide where we're going to settle, we'll buy another home. Because we can't afford to rent for long.

26 comments:

DJan said...

We rent for all the reasons you state here: we don't have to do the fixing up or pay the taxes. But yes, we are at the mercy of the market and our landlord, who, I think, would love to get out from under the apartment complex problems. I look forward to finding out where you eventually end up, Tom. :-)

Barbara - said...

I rented when I first moved because I didn't know if I would be living here for a long time, and the guidance I got was that even in this great market, you should be able to commit for a minimum of three years and preferably more before one buys. Admittedly my rental situation is unique in that a relative owns this house, but at this point in my life as a single woman I will probably never own again. I don't miss the repairs and stuff at all. Is it as expensive as owning in terms of monthly expenses? Colorado is the second highest growing housing market, so yes. But leaving all those ownership headaches behind? Priceless.

Barbara - said...

I rented when I first moved because I didn't know if I would be living here for a long time, and the guidance I got was that even in this great market, you should be able to commit for a minimum of three years and preferably more before one buys. Admittedly my rental situation is unique in that a relative owns this house, but at this point in my life as a single woman I will probably never own again. I don't miss the repairs and stuff at all. Is it as expensive as owning in terms of monthly expenses? Colorado is the second highest growing housing market, so yes. But leaving all those ownership headaches behind? Priceless.

Linda said...

We sold our home in Texas and moved to Oregon in 2004 never planning to buy another piece of property. My husband's health prevents him from doing any upkeep and I hate it. I hate owning property.

In 2004 we paid $800 for a very nice 2 bedroom, 2 bath, apartment. In 2016 in the same complex but different apartment, we pay $1600. Do I regret our decision to rent, not a bit. I will admit I was a little shocked when a market survey in this area caused our rent to jump $300 a month but things like that happen in life as you know from owning property you'll be selling at a loss, or owning property you can't afford to sell.

Sounds like your situation is such that a gap year is all but a must. Perhaps being out of your house will give you a different perspective.

Stephen Hayes said...

I see that Portland, Oregon, where we live, has the honor of the biggest increase in home prices in the Nation. We pay over $6,000 a year in property taxes. When Mrs. C. retires we'll probably look for a cheaper place to retire.

gigihawaii said...

Good thinking and planning.

christina neumann said...

It sounds like a wise plan. Especially if you're not sure where you want to be. We've been discussing this too but we are 'old stick in the muds' and don't want to move. Our little community is perfect and we are close enough to Sacramento for my cancer treatments. We have considered Reno or South Lake Tahoe, but there are drawbacks with both. So, for now, I guess we will stay here ( with a mortgage) till the next phase.
Good Luck to you and your partner!!!

Juhli said...

We also plan to rent initially and are equally shocked by rental prices where we plan to move! It is motivating me to even more ruthlessly eliminate belongings before our move.

Tabor said...

I just posted the second part of my neighborhood real estate story and explained how we took a few gap years...although I was still working.

pia said...

I owned an apartment in Manhattan. Though I had paid cash for it, I still paid $1300 a month in monthly charges---for 630 square feet, no dishwasher or washer/dryer (no room). When I had moved in 11 years earlier I paid $595 a month which I thought was a bit pricey but under the (then) $1.00 a square foot rule.

I sold it in that horrible year 2008 and immediately overpaid for a house in coastal South Carolina. I had been living there while the apartment sold as it was too small to show and have me in it.

Never having had a house before I renovated everything. It's four blocks from the ocean, two blocks from the center of town and looks as if it's in the country.

Having lived in coops for many years I never wanted rules again though regret just a little not moving to a gated community for the pools, community rooms, gyms and community feeling.

But in the past 7 years I have become known in town. Last week a friend from a small town in New Hampshire was visiting. She couldn't believe all the people who stopped us to say hello, wanted to go out for drinks and more.

So far I don't find the upkeep as hard as people said. I come from a long line of people who waited for the super---even in private homes---and I'm very good at hiring. In the city I was dependent on the super and the handymen who were also doormen---that's common even in the "best" buildings. Here I can hire who I want to.

I belong to lunch groups where everyone knows somebody good for whatever.

Since I paid cash my biggest expenses are insurance (close to the water) and cable--something I can make go away or lessen if I want to. My property taxes are a joke and I'm so glad that I didn't listen to all the people who told me to buy one of the many houses that were in the 200's then and are now worth 5 or 600K as the taxes would be much more---at least I comfort myself with that. Plus they never factor in upgrades---and I would have wanted them all.

instead I got to put my mark on an undistinguished cottage, and that truly feels great!

The only problem is the weather. We can have weeks of gray with or with out rain. Nobody can tell you what next April will be like as nobody knows---this April was incredible. But weather is a growing problem everywhere.

And I'm very liberal in a sea of.....But I feel better for knowing people so different from myself as I'm beginning to understand the mentality. Though I will never understand Trump's appeal.

It's hard for people to understand me being a cultural Jew but Bernie has helped with that. I respect people's love of religion. Why not? Everyone needs something to hang onto. Plus more and more non religious people are moving here

rosaria williams said...

Renting places you too close to other renters; and there is the rub.

Snowbrush said...

I think we'll stay right here until we can't keep up the house and yard anymore. We've put 26 years into making this place what we want it to be, so the mere thought of moving is pretty grim.

sbjdncmls said...

Here's an idea. How about somewhere in Virginia which puts you sort of in the middle of all the children? And as an acquaintance of mine said when he and his wife left the Palm Beach area (upon retirement) they wanted to move somewhere smaller yet "not small minded" so they chose Charlottesville VA. Another great Virginia town is Winchester VA. Both of these cities are not bastions of NASCAR, etc but have lovely surroundings, an active arts scene and walkable downtowns with good libraries and good health care.

Or like the Senior Nomads in Europe blog you could travel around different cities living in AirBnBs to get a feel for an area. (Costs are probably comparable.) That would require storing furniture, etc, but what an adventure! Once there are grandchildren you may choose another direction. And truly our needs change as we age and change. As my wonderful husband keeps saying when I fantasize about travel or moving, "If not now, when?" And good luck as you work all of this out! You won't know until you try it and both of you could be pleasantly surprised and clearly that's your 'gap year' plan!
Sonja

Carole said...

IT's a big adjustment to go from the square footage typically found in a home, to the square footage in an apartment, or even a condo. I've thought of this often, whenever I start thinking about downsizing.

Kathy @ SMART Living 365 said...

Hi Tom! The more that the real estate sale market goes up, the more rents go up as well. Didn't think of that before? ;-) But because you don't know where you want to be for sure, why rent a place where you already are? Now is your chance to try out some of those other locations on your "list." And you don't need to be there longer than 2 or 3 months each (depending on the weather of course) but chances are good you will know after a few months if you want to make it more permanent. Pay a little extra on places like Airbnb or VRBO and experiment. ~Kathy

Olga Hebert said...

Well, I sold my house and moved into a condo. I came to Florida shortly after the move. I will be heading back next week and I imagine it will take some getting used to. Did I make a mistake? I guess I am not sure yet, but it did feel right at the time.

Barbara said...

I do not have any regrets about selling my house and renting an apartment. But I think that being a single woman who does not want to mess with the upkeep of a house makes the big difference. I love that I do not have to fix anything, wait on any repairmen or research new this and thats. I did look at buying a house again right before I retired while I still had a salary but the market was to hot for me to work on getting a good deal. I was just reading a book by Faye Kellerman where the hero and Mrs. moved to an area that was in the middle of all their kids. Not close to any but not far - as the bird flies. However, I think that is not so important since in retirement you'll be able to take the time to go and visit when you want. I'm sure this gap year will be great fun as you decide what works best for you.

Peggy McHugh Hagen said...

Where will you rent? In an area you are considering buying?

Peggy

Karen D. Austin said...

Tom: What an adventure you have ahead of you. All my best for negotiating through this time of change. I've thought about renting when I get to be in my 70s. But so much can change between now and then. I look forward to seeing hw this all plays out for you two.

Anonymous said...

You are most fortunate to have the means to decide..Renting I did when I was single I was the one who cleaned like hell when the roomates left and I always got the deposit and then some from the owners..I ended up living alone and loving it..We own our home, taxes for the homeless buildings they will build will raise our property taxes a lot, but it is necessary to house people who are desperately in need of housing and some work..I volunteer at the food pantry and a domestic violence place and believe you me any money we get from donors is sorely appreciated. I buy protein sources and cook and bake and make good food choices for many who work in excess of 60 hours a week and still get jammed up for food they are the main breadwinner, man or woman and they are hungry..I see young people who are educated who are still living at home unable to ever buy a home since our rents and house prices are almost higher than Seattle Washington whereby an old home built in the 1950's is about 450,000 and it needs a ton of work and in a crummy area of seattle to boot..You are rich in my opinion, PLEASE BE GRATEFULF OR WHAT YOU HAVE!

Tom Sightings said...

Carole, I went from a 3000 s.f. home to a 1500 s.q. condo once before, when I got divorced, so I think I can do it again now that I'm with B. But, Rosaria, I have the worry you bring up -- too close to other renters and there's the rub.

Olga, to put it simply, you're my hero!

Dr. Kathy McCoy said...

I think you're very smart to rent temporarily while deciding where you want to settle. It might even make sense, should you decide to move to another area, to rent there for six months to a year to make sure you like the area. We moved from California to Arizona six years ago, thinking that we knew what we were getting into. If we had it to do over again, we probably wouldn't make the move, though we do like our home and the slower pace here. When fantasizing recently about making a move back to L.A., even if it meant renting, I was totally shocked at the rents: a 375 square foot condo in an unfashionable suburb was $1795 a month! I'm skittish about long-term renting anyway. I'm haunted by memories of my parents' struggles with money in their later years and the fact that the only reason they weren't homeless was because they had a paid for house. Having that kind of security means a lot to me. So I think we'll stay put and find more reasons to like where we are!

schmidleysscribblins.com said...

Around here the rental properties with two bedrooms and no yard, porch etc. are all much more expensuve per month than what we lay out in a payment for our four-brdroom house with yard.

Yes our house is mortgaged although the mortgage is only about a third of the value of the property (long story, but we refinanced during the "Great Recession' to get a very low interest rate, and used some of the equity for home repair and travel overseas.

Our land is the real "gold mine" as one neighbor puts it. (We bought the house so we woud have a short commute downtown for work and live five minutes from the White House and Capitol buildings.) We are not likely to move anywhere anytime soon, but have the wherewithal for the last one alive to live in one of the retirement facilities nearby if it becomes necessary.

Gloria Roma said...

As a realtor in San Diego, CA I have to share with you two things that no one seems to be considering. They are living without payments for life for both you and your spouse as well as transferring your property tax basis to the new home so you don't have to pay increased property taxes.


Clearly these options would only be ideal for those of you who are making your final move.


Why isn't anyone considering these, very practical, options?


Linda Myers said...

So far, we're set. We live in 625 square feet in a place we own in Tucson. That's from December to April. The rest of the year we live in 1900 square feet near Seattle. At present we have three family-member tenants who help with the garden. When they're gone it will be too much for us.

I'd love to downsize and rent but Art cherishes every item he owns, so we're staying put for now. I do envy you your "where next?" phase.

Susie Q said...

We are currently snowbirds - living between the mid-west and southwest. We own our home in the NW free & clear. Rented for a few winters in SW - @ $2800/month - furnished. This is really the way to go for snowbirds - renting for the 3-4 months you want, where you want. We have 2 cats, and it was getting to be a pain to find someone who would rent to us, so we bought a small home in SW (were going to pay cash, but interest rate for 15-yr mtg was 2.5% so went that route. Will be selling home in MW in next few years, & permanently relocating to the SW - but we'll need a bit bigger of a home. So the next dilemma - buy resale or build.