Renting is now cheaper than owning in all of America’s 50 biggest metro areas

[BeExcellent]

Hmmmmmm. Interesting debate on this topic. Yes we all need shelter and shelter costs $$$. I own houses where renters live, and I rent where I personally reside. Why?

Well I am in the area I live in is for the sake of the best high school in my metro. The average house in that school district is over the 1M mark to purchase. I cannot justify dumping a big down payment into such a house, worrying about if the roof leaks or the HVAC fails and the high cost of debt service. Two summers ago the roof leaked AND the AC went out, total out of pocket cost to the owner? Around 30K. Glad the law requires the owner to fix those items and also glad it didn't come out of my pocket.

I only need this school district 3 more years. Then I'm an empty nester. I'd rather rent and then once my youngest graduates HS I'm free to go where ever my husband and I please. We also won't need a big house at that point, so to me purchasing a primary residence is unwise.

Unless.....I might consider manufactured housing in an over 55 community. Manufactured housing depreciates. You own the structure but you pay lot rent. I could buy into a place like that in several places, particularly near my favorite ski mountain, pay cash for the structure & lot rent forever but come out ahead AND be able to enjoy skiing daily or weekly. No brainer for me. And keep building wealth with the income I earn and the net worth I have. That is a perk being old has that is pretty cool actually. An inexpensive home base in that case & I could do that in a couple different areas that I like to frequent.

Warren Buffet has famously said that his home in Omaha, NE has been a horrendous investment even though he's been free & clear for years and the house is worth over 1M. Why does he hold that view?

Because had he invested that money he put into that house he'd have made at least 15M in the markets.

Primary residences are lousy investments. When renting is cheaper (as it is BY FAR in my metro)? You are better advised to rent & save/invest your money elsewhere.

As a renter you get the advantage of lower rent because the landlord bought under more favorable conditions and in the interest of getting a great tenant will pass those savings onto the well qualified renter.

Everybody wins. The renter gets a good place in an area where purchase is either cost prohibative or out of reach altogether; the landlord gets solid income, reduces vacancy loss and has the property occupied and performing.

I know a couple who live the good life in Orange County. They own 7 homes there free and clear, live in the smallest one and rent the others out at an average of 4K per month per house. Their monthly gross income is therefore 24K. Annual income is 288K or so. They bought those homes in the 1960s and early 70s and keep them up. Each home is worth over 1M. They are not billionaires but they do very well with that kind of passive income.

Real estate is a good inflation hedge and you can do well if you are willing to assume issues most homeowners looking for a primary residence will not.

To me a house is a glorified storage unit for your possessions that you happen to live in. Very different attitude than thinking a residence is a great investment. It actually is horrid as an imvestment vehicle. Just awful.

Rental real estate is a far better investment.

 

[Pierce Manhammer]

Rental real estate is a far better investment.

In our real estate markets, they are.

But in flyover country, it's often cheaper to pay a mortgage than to pay rent, even covering P&I. I could easily cover two mortgages in flyover country with what I pay for my upper-end apartment in the SF Bay area. There are many reasons I choose to rent instead of own right now. It suits my lifestyle to be able to control access to my front door, which is a big one. I'm also going to blast out of this metro in less than 5 years, given it's grossly overpriced homes it would take at least 5 years to be a net 0 investment as well.

 

[BeExcellent]

In our real estate markets, they are.

But in flyover country, it's often cheaper to pay a mortgage than to pay rent, even covering P&I. I could easily cover two mortgages in flyover country with what I pay for my upper-end apartment in the SF Bay area. There are many reasons I choose to rent instead of own right now. It suits my lifestyle to be able to control access to my front door, which is a big one. I'm also going to blast out of this metro in less than 5 years, given it's grossly overpriced homes it would take at least 5 years to be a net 0 investment as well.

My portfolio is in "flyover country". I bought for + cash flow but have also had some appreciation and right now I'm looking very smart having done that.

Problem in flyover country is that incomes remain low relative to cost of living. People don't have a down payment even if they could swing a mortgage in many cases. Most of my tenants are working class folk who may never save enough to buy a house. I've had some renters 10+ years. I keep the rents below market & maintain the houses. Those renters have retired my debt. And if something breaks? I have it repaired immediately.

Vacancies are bad. If you cruise along more than a decade with on time rents and without any vacancy loss? You're cooking with gas.

 

[jaygreenb]

Just my 2 cents, there are posters on here much more experienced and savvy when it comes to real estate than myself. If you are an experienced and disciplined investor you can certainly out pace any net returns on a personal residence plus not have all that liquidity tied up. The vast majority of people need to be saved from themselves though. A personal residence is essentially a forced savings where if they rented they would either not invest the difference in cost or they would make horrific investment decisions that would be a net negative.

 

[BeExcellent]

Just my 2 cents, there are posters on here much more experienced and savvy when it comes to real estate than myself. If you are an experienced and disciplined investor you can certainly out pace any net returns on a personal residence plus not have all that liquidity tied up. The vast majority of people need to be saved from themselves though. A personal residence is essentially a forced savings where if they rented they would either not invest the difference in cost or they would make horrific investment decisions that would be a net negative.

Agree 1000%.

 

[Reincarnated]

Just my 2 cents, there are posters on here much more experienced and savvy when it comes to real estate than myself. If you are an experienced and disciplined investor you can certainly out pace any net returns on a personal residence plus not have all that liquidity tied up. The vast majority of people need to be saved from themselves though. A personal residence is essentially a forced savings where if they rented they would either not invest the difference in cost or they would make horrific investment decisions that would be a net negative.

Bingo, this is an excellent way to look at it. Let's say for simplicity sake the net difference in total expenses month by month is 20% in favor of renting. I would imagine that for 90% of people almost all of that excess goes out the door each month. It cannot be understated the benefit of building equity in something (albeit often very slowly in the beginning for real estate). This may be an unpopular opinion to many, but I'd prefer to own a home that's a bit below my means/isn't extraordinary than to rent a place that may be more aesthetically pleasing. Once you get to the point that you have a decent equity position in your home, it's not like that value is necessarily locked up either, you can use that to your advantage in a number of ways.

 

[Scaramouche]

I built my first House from scratch in 1967,since then I have had maybe 16+ houses pass through my Hands...My Dad was a Carpenter with loads of gear and heaps of contacts and so I gradually learned the hands on skills involved...eventually I became a qualified Engineer,there were then no problems getting the licenses etc....My modus operandi was to buy established homes,the most run down home in a good street having a large block,with potential for either extension or dual occupancy...I didn't rent them out but rather set up groups of young malleable single Guys to rent rooms,as I worked night shift lecturing in Colleges I could then move a Caravan into the back yard and start either building extensions,renovating the house room by room,or building a second residence,often all three...I generally doubled my original outlay over maybe 2-3 years...Hard work,but enabled me to retire before fifty.

 

[jaygreenb]

Bingo, this is an excellent way to look at it. Let's say for simplicity sake the net difference in total expenses month by month is 20% in favor of renting. I would imagine that for 90% of people almost all of that excess goes out the door each month. It cannot be understated the benefit of building equity in something (albeit often very slowly in the beginning for real estate). This may be an unpopular opinion to many, but I'd prefer to own a home that's a bit below my means/isn't extraordinary than to rent a place that may be more aesthetically pleasing. Once you get to the point that you have a decent equity position in your home, it's not like that value is necessarily locked up either, you can use that to your advantage in a number of ways.

The problem with most people is access to debt has made them believe they can afford much more than they actually can. My personal opinion is if you can't save 20 percent plus of your income to invest or save, you can't afford the other expenditures in your life and need to downsize somewhere. If you ever really want to achieve some level of financial freedom would say that is the minimum. Like you, I have always lived pretty modestly, especially through my twenties and thirties. In my forties I have started to enjoy some of the fruits of my labor more but that was after building a strong foundation.

 

[jaygreenb]

I built my first House from scratch in 1967,since then I have had maybe 16+ houses pass through my Hands...My Dad was a Carpenter with loads of gear and heaps of contacts and so I gradually learned the hands on skills involved...eventually I became a qualified Engineer,there were then no problems getting the licenses etc....My modus operandi was to buy established homes,the most run down home in a good street having a large block,with potential for either extension or dual occupancy...I didn't rent them out but rather set up groups of young malleable single Guys to rent rooms,as I worked night shift lecturing in Colleges I could then move a Caravan into the back yard and start either building extensions,renovating the house room by room,or building a second residence,often all three...I generally doubled my original outlay over maybe 2-3 years...Hard work,but enabled me to retire before fifty.

Compounding effect of decades worth of consistent small good decisions. Well done.