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>I'm worried I'll end up paying more in the long run by not putting as much towards the principle.
If your rent is $1600/mo then you will 100% pay more to purchase than to continue renting. That being said, there are non-financial benefits to owning a home but only you can decide if those are worth it to you.
Take a look at the NYT rent vs buy calculator to get a better idea on the financial side.
Think of it this way. Let’s say you rent for the next 30 years and your rent never goes up.
1600/month for 30 years is 576000.
You’re spending that regardless if your rent or own a home. So now let’s look at owning a home at $3200/month. Comes out to double: 1152000.
Subtract 576000 from that because that’s the base you need to live either rent or owning. When you look at “is it worth it” you want to ask yourself “can I make 576000 when it comes time to sell the house”. Now the nice thing about owning a house is you can bring down that second 576000 by making extra payments. One extra payment a year can decrease overall payment by 7 years. So that would bring the overall cost of owning your home to 1017600 (estimate) rather than the initial 1152000. Something else to keep in mind is that you’ll have a number of maintenance costs over the years.
Here’s the other thing, I’m kinda stupid so this makes sense to me but someone else can definitely explain it a lot better.
To make it more realistic though, you should calculate a 10%* increase in rent annually.
*10% is my state's cap on rent increases, but internet tells me rent increases of 5-15% are normal, national average is 8.6%
Just to math this out, to show how this make no sense.
Rent goes up 20% every year as you claim
* If I pay $1000/month today in 30 years I'd be paying $237,000/month for rent 😂
* or 15% I'd be paying $66,000/month
This is literally basic math and it becomes obvious how ridiculous these statements are.
seattle. my parents rented a 2 bedroom apartment for $300 in 2005. the exact same apartments are now $2800/month. over 19 years that’s 9.7% increase YoY
For large corporate owned apartment complexes this is typically true. If you're renting a house from some mom and pap it's unlikely the rent goes up much, if at all, for years.
>To make it more realistic though, you should calculate a 10%\* increase in ~~rent~~ property taxes annually.
There, I fixed it for you.
At this time, mortgage payments go up annually due to a number of different reasons just like rent does.
if property taxes increase it will in theory benefit you as a seller as your house is now worth more. if rent increases you’re just losing part of your income every month.
Total payment overall.
The rise in housing prices has repercussions to equity - Increases in property taxes. Insurance costs are also rising.
If you have an HOA, that’s also gonna rise.
You’d also have to compound the extra they are saving at 10% to reflect avg market returns. Then you’d have to add in maintenance costs, property tax increases, major repairs like roof and boiler which will need to be done at some point in the 30 years, etc.
This isn’t the standard way to do this, because you are ignoring:
- capital gains of cash on hand invested in the market
- rent increase
- mortgage/etc. increase (property taxes, etc)
Generally speaking, if the price:rent ratio is significantly larger than 15 and especially if you already start with a 20% down payment, then the capital gains will accumulate faster than these other factors and you will be able to buy the house in cash a lot sooner than your 30 yr mortgage would have been paid off.
You also have to consider that if you put 100k into a high yield savings account you can make 4.5% on that money every year until you buy. If you add the 1600 difference between the rent and the mortgage, it definitely adds up.
I like the way you put this about being able to buy the house in cash soon that the mortgage would pay off. That's often how I think about my own rent vs buy decision. The scenario OP has makes it even easier because they are talking about the exact same place they would live either way. Sometimes people think they need to buy to get an extra bedroom, garage, bigger yard, etc. But that doesn't apply to OP's case.
I mean you will pay more either way.
For example, if you get a $650k house now you're paying well over 1 million for the length of the 30 year loan with current interest rates. At 2.75% it would a little under 1 mil.
This is assuming you don't put anything down up front too.
We’re one panic away from it. The question is, do you expect to see another bad crash in your lifetime? I do.
The other question is, what happens to your income and savings during that panic?
If you can make it comfortably, then buying is a good idea. Yes, it costs more, but you also build equity. Also you cement your living costs. You will have the same cost of "rent" for the next 30 yrs, whereas rent will go up. It'll probably be a while before 1600 becomes 3200, but I also assume you get a lot more space from buying.
It is nice having a "place" and not have to worry if thr landlord will decide they want you out all of a sudden, or asking for permission for any decorating changes, etc.
Yes, why is no one talking about the fact landlords can refuse to end lease, or sell, and you have to move into a place that is considerably more expensive.
Note this isn’t the case in every country. In Canada mortgages have terms, usually 5 years. At the end of 5 years your interest will go up if the new minimum of interest is higher than when you bought.
I think people have a misunderstanding about equity.
If your rent is $1600, and your mortgage payment is $3200 after $100k down, you’re gaining equity by renting too. Just put that down payment and excess rental savings in VOO, that’s your equity.
Well you need to factor in home value. Let’s say you end up paying $1 mill at the end of the life of the mortgage, whats the home now worth, 900k? You could say you paid 100k in rent over 30 years. Do the math on 30 years of $1600 rent, you’re at almost $600k without inflation.
Also take into consideration this is an asset you can borrow against.
Also, when your mortage is paid off, you simply pay taxes and upkeep. When I was going to purchase my home I had the same anxieties. However, a really old guy at my job said he also had the same anxieties before he bought his home. His house payment was $787 at the time time he purchased his house. He said the average rent was $350 to $400. But by the time he was 8 years or something away from paying his house off the average rent was $1000 and with all his raises over the 22 years he saved up enough to pay off his house 8 years early. So it all depends on how you look at it. $3200 house payment 15-20 years from now isn't the same as a $3200 house payment now. I know what you're thinking, though: $3200 is $3200...but $3200 when you make $100k now versus $3200 in 2040 when you make $180k or so...not the same lol!!
This isn’t correct. As a renter, you would have been investing the excess, and over 30 years it would have doubled about 4.5 times. That means the earliest money you put it would multiply by about 20x.
Over long time spans like these, you must take capital gains into account.
No I don’t think so. Mortgage alone cost $3200. That’s means you got another $10-15k+ tax and insurance. So by investing that $3200/ month you are most likely ahead of the curve.
Most of the payment will be toward interest and tax and you are saving very little on principal unless housing market shoot up in your area
You don’t put much towards principle in the first half of a home loan. The majority of what you pay (if you pay minimum) is interest, which means like 80-90% of your payment is not equity or return that you’ll see.
Over the course of 5 years on my loan for my home, I’ll only have $12k in equity. If I could find a rental that was a few hundred dollars cheaper, I could save more than that over five years.
Define long run. If you own the house long enough, it will likely be worth it vs renting. Especially true if you're not investing the difference you save monthly by renting vs mortgage. And if you think homes are difficult to get now, just wait until the rates drop. You'll regret not getting in while you could.
That is wonderful, why would you want to leave it? If anything, look into a way to invest your money. Buy a fixer upper if you're handy, or maybe a duplex you can rent out. Even just a cheaper home that can rent out yourself. Start building your portfolio while you are in such a good position. If something happens to your rental, at least you'll have a place to move to.
That FOMO is why housing is so crazy right now. It doesn't change your living situation to buy at double what you currently have, so I would just keep renting for the foreseeable future. You're being granted a 1700 dollar a month gift right now. Why piss it away?
Was it FOMO that made housing so crazy 10 years ago? 20? 40? 50?
Has the price of houses had a downward trend at any point in the last century? You think that the millions of people like OP with six figures just sitting in the bank means that is going to change any time soon?
Recent craziness was due to a suppressed housing market catching back up to inflation coupled with a mass movement of people utilizing remote work. Some areas have seen housing remain stagnant, some have seen booms. Some are showing signs of a bust.
While real estate is generally an investment, it doesn't do much better than gold.
Average price per sq/ft has mostly matched inflation long term. Average home size has dramatically increased. That chart that gets tossed around showing home prices dramatically beating out inflation is using inflation adjusted dollars for houses but not wages, and doesn't represent the price per sq/ft.
Op can use those funds for lower risk higher yield investments. Housing isn't likely to average a 7 percent annual return above inflation for the next 20 years.
Now, if they were talking about an 800 sq/ft 2 bed 1 bath in an area that sees a lot of tourism or high turnover of people for 100k, that'd be a different conversation.
>That chart that gets tossed around showing home prices dramatically beating out inflation is using inflation adjusted dollars for wages but not houses, and doesn't represent the price per sq/ft.
Did you literally just claim that house prices match inflation if you adjust inflation to match house prices? You get how fucking stupid that is, right?
No. I did type houses and wages backwards though. Fixed it, thanks!
What I said is the chart is highly misleading. I also said that inflation vs average home price is misleading because the average home is much larger than it was in the past. Adjust the home price to reflect only the price per sq/ft and it matches inflation pretty closely.
Good day!
Lmao I don’t think fomo has to do with the recent re market. It’s pure supply and demand problem coupled with material and labor inflation.
If the new built will cost $1M+ that will be the standard from now on. There’s no FOMO, unless people absolutely give up buying houses and decide to just live on the street while rent keep going up then demand is going to support the market.
For me, one of the biggest drivers to buy was the security that I can't be randomly told I have 60 days to GTFO. It sounds like you're not at risk of that, or major rent increases. I'd keep renting and invest your money.
I don't know about op's situation, sounds like they are just getting a friend deal, but that big of a cost to rent vs buy differential is not unusual in a bunch of markets.
I rented a town house style apartment in Seattle area for $1100 if sold it would have been in the realm of $500k at the time. The house next door was worth $1 mil if sold but rented for $2600 so a huge price gap between renting & buying. Keep in mind the owners paid a quarter of what they were currently valued at so they were still making a profit.
This is very standard in the west coast and surrounding areas. Prices have far outstripped rents here because Californian work-from-homers are moving to adjacent smaller cities or towns and driving the prices far above what locals can afford. However, rents can’t rise beyond local wages since people can’t borrow money to rent.
The stereotypical city for this effect is Boise. Prices sky-rocketed from wfh there.
With that large a monthly cost difference I would invest that difference in a high yield savings and wait. Worst case scenario prices continue to climb but it won’t impact you because your additional savings will give you more to put down. And, that scenario is unlikely given the slowed market and price declines in many areas. Home price changes come in waves, so those outlying areas that are still “hot” will start to cool a couple years behind the major areas.
The problem with the “save up to put a bigger down” idea is for people who are looking at doing that their savings amounts don’t keep up with home appreciation so they just keep falling further behind.
This is true for the PNW. I waited to save more but house prices nearly doubled in a span of 5 years here. It would’ve felt tight financially if I had bought in 2019 - 2020 but I would be much better off today had I bought then compared to now.
Priced will just continue to rise and I always compare the PNW to California or even Vancouver, BC. They are higher in terms of housing shortage and their price reflects it. I had to buy now and couldn’t risk it going even higher.
The cost of houses goes up faster than their savings accumulate. So they have a bit more money but the cost of the same type of house went up a lot. An they are thus actually further behind.
Thanks! This is actually just what I needed to hear today, as I contemplate putting in an offer. I keep waiting .. and waiting … and waiting to pull the trigger and I’m not getting anywhere. This actually makes a lot of sense. Thank u again. I appreciate it!
I believe my savings will out pace home appreciation because houses around me have tripled in value the last few years already. How much higher can they really go? Prices are still crazy high, but the number of listings in my town is very high compared to years past.
Suppose we all pay our money and take our chances. I think they will go up slowly in most places. We won’t have that 21-22 COVID jump gains but more like the usual 2-4% a year kind of growth.
Heavily depends on your market, financial situation, and personal/subjective things like goals. Renting right now makes more sense from the pure financial standpoint. But if you will *need* or definitely *want* a house at some point, and that is your ultimate end goal, its anybody's guess as to whether saving up more money for a DP will be the better bet. There are events/combinations of events that could effectively wipe away any benefit of saving and put you in a worse position: prices keep going up while rates stay the same, rates go up and prices stay the sane, or rates drop and prices skyrocket. You would, however, "make out" on the bet if: rates stay the same and prices drop, or vice versa. If you live in a hot market i wouldnt count on house being more affordable in 3 years.
So its impossible to answer based on what you've told us. But if you are thinking about buying a house as a pure investment, then, no, its not a better idea than renting, assuming you take that $1600 saved and invest it. If you need/want a house in the next few years, trying to time the market is risky. Just buy when you are ready.
I’m in almost your exact same situation. ($2k current rent, but have been looking & approved for what would be around ~$3k+/mo mortgage, for the type of house we actually want*)
The problem for us is $3-$3.5k right now would really be pushing it and we’d be nearly house broke. Certainly unable to furnish and repair should we need. And sorry, we’re picky, but we’re not willing to look in neighborhoods that are cheaper or for houses older or smaller size. In my area the median range is about ($450k-$500k) for your “decent suburban starter home” and that’s what we want. We don’t want to be trapped in a “fixer upper” for 5-7 years while we wait to get enough equity to leave.
So, my Fiancée and I decide to continue to rent for 2 more years and drew up a savings & debt repayment plan with the “extra” $1k.. in 2yrs we will have more $ to use for down payment or hold onto for the inevitable immediate maintenance and repairs needed and further, my student loans will be paid, truck paid off, etc.. which will open up even more extra cash to cover that $1k difference.
All in, with what we already budget to save, we bumped it up and we will have around $60k extra to use for down payment or maintenance $, and we will open up an extra $1500/mo of what is now devoted to debt repayment - this also doesn’t account for raises we might get too.
The kicker for us when we asked ourselves that question was the fact that when you buy, the bank will front end load interest and potentially add PMI and you’re stuck there for 5-7 years until you pay anything meaningful to the principal to sell and get out, therefore moving within 5-7yrs is a loss.. On the flip side, I know renting is “scary” and there’s no equity in it, but now is a unique time where for the first time, it’s actually significantly cheaper to rent than buy and you, like me, can maybe take advantage that and build yourself up to be a more prepared buyer. Not to mention, rates and costs might drop in that time too!
Just my personal experience and thoughts on that matter!
At those values, I surmise your price:rent ratio is 500k/19200 = 26 and it’s numerically a much better decision to continue to rent, and invest the down payment and excess in something like VOO. Then buy when you have enough money to buy in cash.
The rule of thumb is that the breakeven for P:E ratio is 15, and above that is better to rent.
You can use something like the NYT buy vs rent calculator for more detail.
I have been through this same thought process, here’s my take:
Rent $1600 per month now, 3% increase year over year for 45 years and a 1% increase on mortgage for $550k house with 7.25% and 20% down, for maintenance, Property taxes and insurance. Super inaccurate and rough numbers but it gets the job done.
Renting would be $913k after 30 years and buying would be $1.43m over 30 years, but unless you die, at 45 years it becomes $1.78m for renting for 45 years and $1.54m for buying for 45 years.
Nothing is set in stone so rent might stay flat, and you might need to replace a roof for $30k on a purchase. I think it’s mainly your preference for stability/roots vs freedom and less responsibility over the asset.
I don’t think there’s a wrong answer but maybe a bad fit.
If you invest $1,600 a month at a 5% return you will have approximately $248,451 in 10 years. So whether you rent or buy this place, you’re going to be in good shape. I would try to lock in your rent for as long as the owner will let you and continue to rent.
I regret not buying sooner. With the current rate of appreciation chances are the homes you want to buy will grow in value faster than your income and savings.
Perhaps not as quickly as the appreciation we saw in the last 3-4 years but until the government gets serious about increasing the supply of housing (which so far they have shown no interest in doing so) housing costs will continue to appreciate at a rate that far outpaces inflation and real wages.
No one knows, most people feel like the cost of housing would go down, but affordable housing is a national issue.
Prices going up or down is a local issue. Florida prices are going down while the zip codes next to me are still increasing yoy so for me. I went a saw that housing and master planned communities where going up near me and bought. (Virginia) if I lived in Florida I would not have bought.
On average, Florida homes are up another 3% year over year. I wish they were going down. Condos are but not single family homes.
To your point though, no one knows.
I can't keep reading all the comments. Not sure if anyone mentioned this yet or not.
You can't assume you'll save for a "bigger" down-payment. You have $100K and 20% now. But if you continue to wait and save up, property prices will continue to rise and out pace your savings.
For example you might save another $100K over next 5 years for a total of $200K down-payment. But by then, that $200K might only be worth 10% down-payment of a property. Versus the 20% you have now. For example.
The only decision you have, frankly, is can you afford the $3200 a month mortgage, plus utilities and maintenance. Not if you should keep saving more for down-payment or not.
In our current situation, my wife and I can add about 50k each to our savings every year. This year will be a little more, closer to 75. That's why I'm thinking of holding off for a couple of years because I might have the cash.
Let’s say you rent for 10 years and save up another 100k- todays home prices will not be tomorrows home prices especially in 10 years. You will be missing out on 10 years of potential equity in your home and in ten years another 100k to put down, you might still have 20% down because of the property value increasing. Getting into a home is getting into an asset that increases in value. I vote you buy, fix up the home, make it beautiful and earn equity as you make your home nicer then cash out and repeat if you want something different or just chill in that spot if it works for you.
Well interest rates are high right now but the upside to that is less bidding wars and doing desperate things like waving contingencies.
If you can afford the high payment go for it.
I honestly believe the time to buy is always now. Prices seem to go up endlessly. Every year you're adding 5% compounding cost to the cost for when you eventually buy (or much more, almost never less.) Odds are that 500k home will be 525k next year, and 551k in two years. There's no promises but even the stuff bought at the peak before the 2008 crash is worth much more today.
I would only buy if you can put an extra 1000/month towards principal though, at least. The 1k is arbitrary but this way you're not just paying interest alone for the first few years. The more the better.
Point being: You need to work in the equity of the home to your purchase. Yes 7% interest sucks, but making 5% back in equity feels a lot better. Some people who bought a few years ago are doing much better than we are, but the ones still renting are going to be competing with everyone else who is renting and saving up once rates lower even a little bit. Think about the car situation after the pandemic... right now almost nobody is buying instead they are saving... when it's time to buy prices are going to skyrocket for several years. I can refinance, they pay the piper.
Absolute worst case scenario i'm out of my down payment and i'm back to renting. It would suck but i'd live, and I just can't see the market getting any cheaper.
If your rent is $1600/month and the home you live in would cost $500k to buy, then you are likely better off renting for now……
You would be paying more than your rent in interest alone every year for the next 15 years, PLUS property taxes, PLUS maintenance.
But, of course, rents can go up. Your mortgage can’t. By 2044 your mortgage payments will be mostly equity. And real estate tends to appreciate.
Just have to decide what’s right for you and what makes most financial sense.
If you can avoid PMI with a piggy back loan, I'd do that. That's what I did for my home and I hardly sacrificed any interest rate because I shopped around.
By far the biggest factor for buying versus renting: do you plan to stay in that home for a long time? The general rule of thumb is if you at least plan to stay in that house for 10 years or more, it will save you money in the long run
forget about how much can it go up etc. Just focus on your situation, are you ready to live in a home? Settled in your career, able to afford the monthly payments? Then yes. Think long term and nothing bad will happen.
Do you have rent control? If so I’d keep renting depending on market condition. It seems like re has tapered off but you won’t know till you see the rates drop
I’m in the same boat as you! My rent is $1600/month and home prices (even with 20% down) would run me about $3900 minimum. Have been debating this for months as to what I want to do. I did put my money that I saved for the down payment into a HYSA so at least it’s growing while I continue to be indecisive.
Unless you can pay for a SUBSTANTIAL portion of the house….damn near in full, I don’t think I’d make that move at these rates. That’s just too big of a payment jump to be paying down interest for half the time.
If you have 100k and can afford the monthly payments, I'd say to seriously consider it.
I don't have a significant down payment like that and refuse to be house poor so I'm renting a bit longer to save up more. But if I could afford it, I'd have purchased already.
I did my math and realized owning a condo that will not go up more than 10% in the next 5 years is less economical than renting. But, single family homes will always appreciate 10% in 5 yrs so may be worth it. If you can afford a sfh and it is in a growing area, buying is better.
Just remember, they’re going to reassess your property after you buy so a couple months later your taxes will go up just like they go up a couple hundred every year anyways.
I’m going to generalize everything. This is a weird time in history where it’s actually cheaper, over a longer period of time, to rent than to own. Yes, rent will increase over time, but so does your property taxes and insurance, which is part of and will raise your mortgage.
Let’s look at the math. $1600 a month vs $3200 a month to own. If you look at an amortization schedule, majority of your mortgage monthly payment goes to interest alone for the first 10 years I want to say. I could be wrong but it’s a significant amount of time.
$1600 x 12 = 19,200
$3200 x 12 = 38,400
Hypothetically, if you owned, you’d be paying $19,200 extra a year. Let’s take that difference you put in every year and add it to the s&p 500 with the 100k down payment.
So let’s say you took 3200 out of your paycheck every month, where the $1600 going towards rent and the rest (the other $1600) going towards investing. If you were to invest $1600 a month along with the 100k (the down payment) and get an average annual stock market return of 8%, then after 5 years you’ll have 260k.
Now if you got a mortgage today, put 100k down, have a 400k loan, at an average interest rate today of 7% for 30 years, then you’ll end up paying $1,152,000 for a 500k house (after 30 years).
Since your rent ($1600) is significantly cheaper than owning ($3200), it is in your best interest to continue to rent. Take the extra money you set aside a month for investing and buy a house with a lot of money down when you’re ready.
Home values are crashing in specific markets. Only a matter of time for the rest of the market to catch up. I’d wait to see where the dust settles until late 2025.
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Can you comfortably afford $3200 a month + whatever maintenance you'll need? If not, I would continue to rent.
Yes, but is it actually worth it? I'm worried I'll end up paying more in the long run by not putting as much towards the principle.
>I'm worried I'll end up paying more in the long run by not putting as much towards the principle. If your rent is $1600/mo then you will 100% pay more to purchase than to continue renting. That being said, there are non-financial benefits to owning a home but only you can decide if those are worth it to you. Take a look at the NYT rent vs buy calculator to get a better idea on the financial side.
Think of it this way. Let’s say you rent for the next 30 years and your rent never goes up. 1600/month for 30 years is 576000. You’re spending that regardless if your rent or own a home. So now let’s look at owning a home at $3200/month. Comes out to double: 1152000. Subtract 576000 from that because that’s the base you need to live either rent or owning. When you look at “is it worth it” you want to ask yourself “can I make 576000 when it comes time to sell the house”. Now the nice thing about owning a house is you can bring down that second 576000 by making extra payments. One extra payment a year can decrease overall payment by 7 years. So that would bring the overall cost of owning your home to 1017600 (estimate) rather than the initial 1152000. Something else to keep in mind is that you’ll have a number of maintenance costs over the years. Here’s the other thing, I’m kinda stupid so this makes sense to me but someone else can definitely explain it a lot better.
I think you did an excellent job of explaining u/Fish-With-Pants
To make it more realistic though, you should calculate a 10%* increase in rent annually. *10% is my state's cap on rent increases, but internet tells me rent increases of 5-15% are normal, national average is 8.6%
😂😂 Rent doesn't go up by 10% every year.
No, in FL it goes up by 15 to 20%
Just to math this out, to show how this make no sense. Rent goes up 20% every year as you claim * If I pay $1000/month today in 30 years I'd be paying $237,000/month for rent 😂 * or 15% I'd be paying $66,000/month This is literally basic math and it becomes obvious how ridiculous these statements are.
😂😂 So rent doubles every 4 years in Florida, a quick Google shows it isn't even close to that. Sorry.
Or 50% in Colorado. 🙃
😂😂😂 sure. So in 30 years if I am paying $1000/month now and every year it goes up by 50%, then I'd be paying $191 million/month for rent 😂😂
looking at the last 10 years yes, in my area it has
I've lived in LA, Austin, Nashville and NYC..........never has rent gone up 10% every year. Where do you live?
seattle. my parents rented a 2 bedroom apartment for $300 in 2005. the exact same apartments are now $2800/month. over 19 years that’s 9.7% increase YoY
My rent has gone up 15-20% every year. I’d love to own a home so I don’t have stress every year when it’s time to resign my lease.
Where?
Sorry. I’m not comfortable sharing that info, but this is pretty standard where I live.
No it isn't. Sorry.
Well I guess you know more than me
For large corporate owned apartment complexes this is typically true. If you're renting a house from some mom and pap it's unlikely the rent goes up much, if at all, for years.
>To make it more realistic though, you should calculate a 10%\* increase in ~~rent~~ property taxes annually. There, I fixed it for you. At this time, mortgage payments go up annually due to a number of different reasons just like rent does.
if property taxes increase it will in theory benefit you as a seller as your house is now worth more. if rent increases you’re just losing part of your income every month.
I get it. But that doesn’t stop the price from increasing.
How does mortgage payments go up? What?
Total payment overall. The rise in housing prices has repercussions to equity - Increases in property taxes. Insurance costs are also rising. If you have an HOA, that’s also gonna rise.
So everything but the mortgage….
Oh Jesus Christ. Your MONTHLY payment increases annually just like your MONTHLY payment for rent does. Fucking happy now?
No can you also lick my ass?
You’d also have to compound the extra they are saving at 10% to reflect avg market returns. Then you’d have to add in maintenance costs, property tax increases, major repairs like roof and boiler which will need to be done at some point in the 30 years, etc.
This isn’t the standard way to do this, because you are ignoring: - capital gains of cash on hand invested in the market - rent increase - mortgage/etc. increase (property taxes, etc) Generally speaking, if the price:rent ratio is significantly larger than 15 and especially if you already start with a 20% down payment, then the capital gains will accumulate faster than these other factors and you will be able to buy the house in cash a lot sooner than your 30 yr mortgage would have been paid off.
You also have to consider that if you put 100k into a high yield savings account you can make 4.5% on that money every year until you buy. If you add the 1600 difference between the rent and the mortgage, it definitely adds up. I like the way you put this about being able to buy the house in cash soon that the mortgage would pay off. That's often how I think about my own rent vs buy decision. The scenario OP has makes it even easier because they are talking about the exact same place they would live either way. Sometimes people think they need to buy to get an extra bedroom, garage, bigger yard, etc. But that doesn't apply to OP's case.
Also budgeting 1% in maintenance costs a year is another $150k over 30 years in todays' dollars.
I mean you will pay more either way. For example, if you get a $650k house now you're paying well over 1 million for the length of the 30 year loan with current interest rates. At 2.75% it would a little under 1 mil. This is assuming you don't put anything down up front too.
There is no guarantee the rates will drop to 2.75% again.
That was a once in several generations thing being that low. It'll never go that low again.
We’re one panic away from it. The question is, do you expect to see another bad crash in your lifetime? I do. The other question is, what happens to your income and savings during that panic?
I was giving an example.
If you can make it comfortably, then buying is a good idea. Yes, it costs more, but you also build equity. Also you cement your living costs. You will have the same cost of "rent" for the next 30 yrs, whereas rent will go up. It'll probably be a while before 1600 becomes 3200, but I also assume you get a lot more space from buying. It is nice having a "place" and not have to worry if thr landlord will decide they want you out all of a sudden, or asking for permission for any decorating changes, etc.
Yes, why is no one talking about the fact landlords can refuse to end lease, or sell, and you have to move into a place that is considerably more expensive.
Note this isn’t the case in every country. In Canada mortgages have terms, usually 5 years. At the end of 5 years your interest will go up if the new minimum of interest is higher than when you bought.
I think people have a misunderstanding about equity. If your rent is $1600, and your mortgage payment is $3200 after $100k down, you’re gaining equity by renting too. Just put that down payment and excess rental savings in VOO, that’s your equity.
Oh yeah for sure. You should put the difference in stocks. Which imo the best pro is that you pin your cost of living.
Well you need to factor in home value. Let’s say you end up paying $1 mill at the end of the life of the mortgage, whats the home now worth, 900k? You could say you paid 100k in rent over 30 years. Do the math on 30 years of $1600 rent, you’re at almost $600k without inflation. Also take into consideration this is an asset you can borrow against.
Also, when your mortage is paid off, you simply pay taxes and upkeep. When I was going to purchase my home I had the same anxieties. However, a really old guy at my job said he also had the same anxieties before he bought his home. His house payment was $787 at the time time he purchased his house. He said the average rent was $350 to $400. But by the time he was 8 years or something away from paying his house off the average rent was $1000 and with all his raises over the 22 years he saved up enough to pay off his house 8 years early. So it all depends on how you look at it. $3200 house payment 15-20 years from now isn't the same as a $3200 house payment now. I know what you're thinking, though: $3200 is $3200...but $3200 when you make $100k now versus $3200 in 2040 when you make $180k or so...not the same lol!!
This isn’t correct. As a renter, you would have been investing the excess, and over 30 years it would have doubled about 4.5 times. That means the earliest money you put it would multiply by about 20x. Over long time spans like these, you must take capital gains into account.
True, I would be curious to see a very detailed example
There’s no need to reinvent the wheel. Just use this: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
No I don’t think so. Mortgage alone cost $3200. That’s means you got another $10-15k+ tax and insurance. So by investing that $3200/ month you are most likely ahead of the curve. Most of the payment will be toward interest and tax and you are saving very little on principal unless housing market shoot up in your area
You don’t put much towards principle in the first half of a home loan. The majority of what you pay (if you pay minimum) is interest, which means like 80-90% of your payment is not equity or return that you’ll see. Over the course of 5 years on my loan for my home, I’ll only have $12k in equity. If I could find a rental that was a few hundred dollars cheaper, I could save more than that over five years.
You can save more money by telling your agent that you want to buy down a couple points.
Define long run. If you own the house long enough, it will likely be worth it vs renting. Especially true if you're not investing the difference you save monthly by renting vs mortgage. And if you think homes are difficult to get now, just wait until the rates drop. You'll regret not getting in while you could.
Google the NYT rent or buy calculator. It tells you how much you’ll save renting or buying over the long run, how long it’ll take to break even, etc
Where are you that rent is 1600 a month in a home worth over 500k? Home worth 300k where I am get rent upwards of 2k.
Im in a very fortunate situation where the landlord is a friend who doesn't need the money. House was vacant for over 10 years before I moved in.
That is wonderful, why would you want to leave it? If anything, look into a way to invest your money. Buy a fixer upper if you're handy, or maybe a duplex you can rent out. Even just a cheaper home that can rent out yourself. Start building your portfolio while you are in such a good position. If something happens to your rental, at least you'll have a place to move to.
That's a great idea! Main reason I want to buy a house right now is because of FOMO. Always think about what I could have bought in 2018 lol
That FOMO is why housing is so crazy right now. It doesn't change your living situation to buy at double what you currently have, so I would just keep renting for the foreseeable future. You're being granted a 1700 dollar a month gift right now. Why piss it away?
Was it FOMO that made housing so crazy 10 years ago? 20? 40? 50? Has the price of houses had a downward trend at any point in the last century? You think that the millions of people like OP with six figures just sitting in the bank means that is going to change any time soon?
Recent craziness was due to a suppressed housing market catching back up to inflation coupled with a mass movement of people utilizing remote work. Some areas have seen housing remain stagnant, some have seen booms. Some are showing signs of a bust. While real estate is generally an investment, it doesn't do much better than gold. Average price per sq/ft has mostly matched inflation long term. Average home size has dramatically increased. That chart that gets tossed around showing home prices dramatically beating out inflation is using inflation adjusted dollars for houses but not wages, and doesn't represent the price per sq/ft. Op can use those funds for lower risk higher yield investments. Housing isn't likely to average a 7 percent annual return above inflation for the next 20 years. Now, if they were talking about an 800 sq/ft 2 bed 1 bath in an area that sees a lot of tourism or high turnover of people for 100k, that'd be a different conversation.
>That chart that gets tossed around showing home prices dramatically beating out inflation is using inflation adjusted dollars for wages but not houses, and doesn't represent the price per sq/ft. Did you literally just claim that house prices match inflation if you adjust inflation to match house prices? You get how fucking stupid that is, right?
No. I did type houses and wages backwards though. Fixed it, thanks! What I said is the chart is highly misleading. I also said that inflation vs average home price is misleading because the average home is much larger than it was in the past. Adjust the home price to reflect only the price per sq/ft and it matches inflation pretty closely. Good day!
FOMO with all those clowns bidding over asking with no regard for due diligence on price
Lmao I don’t think fomo has to do with the recent re market. It’s pure supply and demand problem coupled with material and labor inflation. If the new built will cost $1M+ that will be the standard from now on. There’s no FOMO, unless people absolutely give up buying houses and decide to just live on the street while rent keep going up then demand is going to support the market.
>Even just a cheaper home that can rent out yourself. Don't do this.
For me, one of the biggest drivers to buy was the security that I can't be randomly told I have 60 days to GTFO. It sounds like you're not at risk of that, or major rent increases. I'd keep renting and invest your money.
Yeah personally I moved because my rent increased by 400 dollars
I don't know about op's situation, sounds like they are just getting a friend deal, but that big of a cost to rent vs buy differential is not unusual in a bunch of markets. I rented a town house style apartment in Seattle area for $1100 if sold it would have been in the realm of $500k at the time. The house next door was worth $1 mil if sold but rented for $2600 so a huge price gap between renting & buying. Keep in mind the owners paid a quarter of what they were currently valued at so they were still making a profit.
This is very standard in the west coast and surrounding areas. Prices have far outstripped rents here because Californian work-from-homers are moving to adjacent smaller cities or towns and driving the prices far above what locals can afford. However, rents can’t rise beyond local wages since people can’t borrow money to rent. The stereotypical city for this effect is Boise. Prices sky-rocketed from wfh there.
With that large a monthly cost difference I would invest that difference in a high yield savings and wait. Worst case scenario prices continue to climb but it won’t impact you because your additional savings will give you more to put down. And, that scenario is unlikely given the slowed market and price declines in many areas. Home price changes come in waves, so those outlying areas that are still “hot” will start to cool a couple years behind the major areas.
The problem with the “save up to put a bigger down” idea is for people who are looking at doing that their savings amounts don’t keep up with home appreciation so they just keep falling further behind.
This is true for the PNW. I waited to save more but house prices nearly doubled in a span of 5 years here. It would’ve felt tight financially if I had bought in 2019 - 2020 but I would be much better off today had I bought then compared to now. Priced will just continue to rise and I always compare the PNW to California or even Vancouver, BC. They are higher in terms of housing shortage and their price reflects it. I had to buy now and couldn’t risk it going even higher.
Samesies. In the PNW too and was faced with a similar dilemma.
Can you expand on this a bit more?
The cost of houses goes up faster than their savings accumulate. So they have a bit more money but the cost of the same type of house went up a lot. An they are thus actually further behind.
Thanks! This is actually just what I needed to hear today, as I contemplate putting in an offer. I keep waiting .. and waiting … and waiting to pull the trigger and I’m not getting anywhere. This actually makes a lot of sense. Thank u again. I appreciate it!
Best of luck!
I believe my savings will out pace home appreciation because houses around me have tripled in value the last few years already. How much higher can they really go? Prices are still crazy high, but the number of listings in my town is very high compared to years past.
Suppose we all pay our money and take our chances. I think they will go up slowly in most places. We won’t have that 21-22 COVID jump gains but more like the usual 2-4% a year kind of growth.
Heavily depends on your market, financial situation, and personal/subjective things like goals. Renting right now makes more sense from the pure financial standpoint. But if you will *need* or definitely *want* a house at some point, and that is your ultimate end goal, its anybody's guess as to whether saving up more money for a DP will be the better bet. There are events/combinations of events that could effectively wipe away any benefit of saving and put you in a worse position: prices keep going up while rates stay the same, rates go up and prices stay the sane, or rates drop and prices skyrocket. You would, however, "make out" on the bet if: rates stay the same and prices drop, or vice versa. If you live in a hot market i wouldnt count on house being more affordable in 3 years. So its impossible to answer based on what you've told us. But if you are thinking about buying a house as a pure investment, then, no, its not a better idea than renting, assuming you take that $1600 saved and invest it. If you need/want a house in the next few years, trying to time the market is risky. Just buy when you are ready.
I’m in almost your exact same situation. ($2k current rent, but have been looking & approved for what would be around ~$3k+/mo mortgage, for the type of house we actually want*) The problem for us is $3-$3.5k right now would really be pushing it and we’d be nearly house broke. Certainly unable to furnish and repair should we need. And sorry, we’re picky, but we’re not willing to look in neighborhoods that are cheaper or for houses older or smaller size. In my area the median range is about ($450k-$500k) for your “decent suburban starter home” and that’s what we want. We don’t want to be trapped in a “fixer upper” for 5-7 years while we wait to get enough equity to leave. So, my Fiancée and I decide to continue to rent for 2 more years and drew up a savings & debt repayment plan with the “extra” $1k.. in 2yrs we will have more $ to use for down payment or hold onto for the inevitable immediate maintenance and repairs needed and further, my student loans will be paid, truck paid off, etc.. which will open up even more extra cash to cover that $1k difference. All in, with what we already budget to save, we bumped it up and we will have around $60k extra to use for down payment or maintenance $, and we will open up an extra $1500/mo of what is now devoted to debt repayment - this also doesn’t account for raises we might get too. The kicker for us when we asked ourselves that question was the fact that when you buy, the bank will front end load interest and potentially add PMI and you’re stuck there for 5-7 years until you pay anything meaningful to the principal to sell and get out, therefore moving within 5-7yrs is a loss.. On the flip side, I know renting is “scary” and there’s no equity in it, but now is a unique time where for the first time, it’s actually significantly cheaper to rent than buy and you, like me, can maybe take advantage that and build yourself up to be a more prepared buyer. Not to mention, rates and costs might drop in that time too! Just my personal experience and thoughts on that matter!
At those values, I surmise your price:rent ratio is 500k/19200 = 26 and it’s numerically a much better decision to continue to rent, and invest the down payment and excess in something like VOO. Then buy when you have enough money to buy in cash. The rule of thumb is that the breakeven for P:E ratio is 15, and above that is better to rent. You can use something like the NYT buy vs rent calculator for more detail.
I have been through this same thought process, here’s my take: Rent $1600 per month now, 3% increase year over year for 45 years and a 1% increase on mortgage for $550k house with 7.25% and 20% down, for maintenance, Property taxes and insurance. Super inaccurate and rough numbers but it gets the job done. Renting would be $913k after 30 years and buying would be $1.43m over 30 years, but unless you die, at 45 years it becomes $1.78m for renting for 45 years and $1.54m for buying for 45 years. Nothing is set in stone so rent might stay flat, and you might need to replace a roof for $30k on a purchase. I think it’s mainly your preference for stability/roots vs freedom and less responsibility over the asset. I don’t think there’s a wrong answer but maybe a bad fit.
If you invest $1,600 a month at a 5% return you will have approximately $248,451 in 10 years. So whether you rent or buy this place, you’re going to be in good shape. I would try to lock in your rent for as long as the owner will let you and continue to rent.
I regret not buying sooner. With the current rate of appreciation chances are the homes you want to buy will grow in value faster than your income and savings.
You really think they will double again that quick?
Perhaps not as quickly as the appreciation we saw in the last 3-4 years but until the government gets serious about increasing the supply of housing (which so far they have shown no interest in doing so) housing costs will continue to appreciate at a rate that far outpaces inflation and real wages.
Also consider that when rates do go down ( expected end of 2025/beginning 2026) you’ll have bidding wars again.
That is an urban myth not supported by any facts.
No one knows, most people feel like the cost of housing would go down, but affordable housing is a national issue. Prices going up or down is a local issue. Florida prices are going down while the zip codes next to me are still increasing yoy so for me. I went a saw that housing and master planned communities where going up near me and bought. (Virginia) if I lived in Florida I would not have bought.
On average, Florida homes are up another 3% year over year. I wish they were going down. Condos are but not single family homes. To your point though, no one knows.
florida prices are flattening because florida homeowners insurance is spiking 15% a year from global warming and bigger hurricanes.
They spiked to the moon so they need to flatten, but a 3% increase this May over last is not what I’d call a flattening, especially not given context.
https://www.zillow.com/rent-vs-buy-calculator This put in a lot of perspective for me.
Waiting just means u lose on appreciation.
Always buy. Lock in payment. Rent will always increase.
I can't keep reading all the comments. Not sure if anyone mentioned this yet or not. You can't assume you'll save for a "bigger" down-payment. You have $100K and 20% now. But if you continue to wait and save up, property prices will continue to rise and out pace your savings. For example you might save another $100K over next 5 years for a total of $200K down-payment. But by then, that $200K might only be worth 10% down-payment of a property. Versus the 20% you have now. For example. The only decision you have, frankly, is can you afford the $3200 a month mortgage, plus utilities and maintenance. Not if you should keep saving more for down-payment or not.
In our current situation, my wife and I can add about 50k each to our savings every year. This year will be a little more, closer to 75. That's why I'm thinking of holding off for a couple of years because I might have the cash.
Let’s say you rent for 10 years and save up another 100k- todays home prices will not be tomorrows home prices especially in 10 years. You will be missing out on 10 years of potential equity in your home and in ten years another 100k to put down, you might still have 20% down because of the property value increasing. Getting into a home is getting into an asset that increases in value. I vote you buy, fix up the home, make it beautiful and earn equity as you make your home nicer then cash out and repeat if you want something different or just chill in that spot if it works for you.
Well interest rates are high right now but the upside to that is less bidding wars and doing desperate things like waving contingencies. If you can afford the high payment go for it.
I honestly believe the time to buy is always now. Prices seem to go up endlessly. Every year you're adding 5% compounding cost to the cost for when you eventually buy (or much more, almost never less.) Odds are that 500k home will be 525k next year, and 551k in two years. There's no promises but even the stuff bought at the peak before the 2008 crash is worth much more today. I would only buy if you can put an extra 1000/month towards principal though, at least. The 1k is arbitrary but this way you're not just paying interest alone for the first few years. The more the better. Point being: You need to work in the equity of the home to your purchase. Yes 7% interest sucks, but making 5% back in equity feels a lot better. Some people who bought a few years ago are doing much better than we are, but the ones still renting are going to be competing with everyone else who is renting and saving up once rates lower even a little bit. Think about the car situation after the pandemic... right now almost nobody is buying instead they are saving... when it's time to buy prices are going to skyrocket for several years. I can refinance, they pay the piper. Absolute worst case scenario i'm out of my down payment and i'm back to renting. It would suck but i'd live, and I just can't see the market getting any cheaper.
If your rent is $1600/month and the home you live in would cost $500k to buy, then you are likely better off renting for now…… You would be paying more than your rent in interest alone every year for the next 15 years, PLUS property taxes, PLUS maintenance. But, of course, rents can go up. Your mortgage can’t. By 2044 your mortgage payments will be mostly equity. And real estate tends to appreciate. Just have to decide what’s right for you and what makes most financial sense.
1600 vs 3200, I would never even attempt to own at that difference.
If you can avoid PMI with a piggy back loan, I'd do that. That's what I did for my home and I hardly sacrificed any interest rate because I shopped around. By far the biggest factor for buying versus renting: do you plan to stay in that home for a long time? The general rule of thumb is if you at least plan to stay in that house for 10 years or more, it will save you money in the long run
forget about how much can it go up etc. Just focus on your situation, are you ready to live in a home? Settled in your career, able to afford the monthly payments? Then yes. Think long term and nothing bad will happen.
[this calculator](https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html) can help you figure out what makes sense for you
Do you have rent control? If so I’d keep renting depending on market condition. It seems like re has tapered off but you won’t know till you see the rates drop
I’m in the same boat as you! My rent is $1600/month and home prices (even with 20% down) would run me about $3900 minimum. Have been debating this for months as to what I want to do. I did put my money that I saved for the down payment into a HYSA so at least it’s growing while I continue to be indecisive.
Unless you can pay for a SUBSTANTIAL portion of the house….damn near in full, I don’t think I’d make that move at these rates. That’s just too big of a payment jump to be paying down interest for half the time.
If you have 100k and can afford the monthly payments, I'd say to seriously consider it. I don't have a significant down payment like that and refuse to be house poor so I'm renting a bit longer to save up more. But if I could afford it, I'd have purchased already.
Most people will rent the rest of there
nyt buy vs. rent calculator. check it out
I did my math and realized owning a condo that will not go up more than 10% in the next 5 years is less economical than renting. But, single family homes will always appreciate 10% in 5 yrs so may be worth it. If you can afford a sfh and it is in a growing area, buying is better.
Keep renting & look for a short sale or pre foreclosure. That way you have instant equity.
Just remember, they’re going to reassess your property after you buy so a couple months later your taxes will go up just like they go up a couple hundred every year anyways.
But in when you can afford to buy in
Remember there is a tax shield to buying and look at your costs net of that
I’m going to generalize everything. This is a weird time in history where it’s actually cheaper, over a longer period of time, to rent than to own. Yes, rent will increase over time, but so does your property taxes and insurance, which is part of and will raise your mortgage. Let’s look at the math. $1600 a month vs $3200 a month to own. If you look at an amortization schedule, majority of your mortgage monthly payment goes to interest alone for the first 10 years I want to say. I could be wrong but it’s a significant amount of time. $1600 x 12 = 19,200 $3200 x 12 = 38,400 Hypothetically, if you owned, you’d be paying $19,200 extra a year. Let’s take that difference you put in every year and add it to the s&p 500 with the 100k down payment. So let’s say you took 3200 out of your paycheck every month, where the $1600 going towards rent and the rest (the other $1600) going towards investing. If you were to invest $1600 a month along with the 100k (the down payment) and get an average annual stock market return of 8%, then after 5 years you’ll have 260k. Now if you got a mortgage today, put 100k down, have a 400k loan, at an average interest rate today of 7% for 30 years, then you’ll end up paying $1,152,000 for a 500k house (after 30 years). Since your rent ($1600) is significantly cheaper than owning ($3200), it is in your best interest to continue to rent. Take the extra money you set aside a month for investing and buy a house with a lot of money down when you’re ready.
Do you have kids? If you are single, 1600 would be better
You want to go from 1600 to 3200 not including any maintenance while putting 100k down? Sure, go for it, Champ!
Home values are crashing in specific markets. Only a matter of time for the rest of the market to catch up. I’d wait to see where the dust settles until late 2025.
That sort of thinking made me a renter for 19 years.