11 ms·

Is It Better to Rent or Buy?

76 points by bane 11y ago

vladsanchez 11y ago
It's flawed since it does not allow to specify a target market. I can't find a comparable rental in my market at the reported price.
deleted 11y ago
[deleted]
t_fatus 11y ago
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 11y ago
  It does take into account the sale of the house when you leave it.
southphillyman 11y ago
Ignores mortgage insurance for down payments < 20%
- ortuna 11y ago
  Yea this is usually significant
  - inmyunix 11y ago
    I've seen a quote for $100/mo for a $300k mortgage.
    - deleted 11y ago
      [deleted]
    - colinyoung 11y ago
      That's about right.
- verelo 11y ago
  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 11y ago
    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 11y ago
      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
    - matwood 11y ago
      VA loans are great. No PMI, no down payment, and listed mostly fixed fees for origination.
  - southphillyman 11y ago
    Mostly agree, but I think the vast majority of primary home buyers don't put down 20%
  - ryandrake 11y ago
    I don't agree this is true for the vast majority of situations. If you have the income to support the higher monthly payments, it's a viable option. I put down less than 10% and am willing to live with the higher rate and Mortgage Insurance in order to Not Be Renting. And if you can eventually pay the loan down a bit such that you end up with 20% equity, the MI goes away. Median home price in Bay Area is what, $900K or so? 20% of that is $180K in cash. I don't know many people who have this, yet there are plenty of home owners here, and I wouldn't be willing to say that the majority of them made a bad decision.
    - 11y ago
- switch007 11y ago
  I've not heard of mortgage insurance. Don't lenders just give higher interest rates to riskier borrowers?
  - altcognito 11y ago
    No, for reasons which relate to overconfidence of bankers and their ability to rate credit: https://en.wikipedia.org/wiki/Mortgage_insurance#History https://en.wikipedia.org/wiki/Mortgage_insurance#History
  - sjg007 11y ago
    Both apply. Rate is typically credit based but also depends on the loan amount. PMI is for <20% down except in special cases.
  - yourapostasy 11y ago
    If you are a higher-than-average risk borrower and put down less than 20%, you get hit with both a higher interest rate than average risk borrowers receive, and you must pay mortgage insurance until you reach 20% equity. To add insult to injury, it is extremely common for the mortgage insurance companies and the mortgage servicing companies (not always the same) to simply keep charging borrowers the mortgage insurance fee even after the borrower reaches 20% equity.
    - extra88 11y ago
      Mortgage insurance payments end at 20% equity but you must ask for it to end. PMI automatically ends when you reach 22%. It also automatically ends if you are halfway through your mortgage schedule (e.g. 15 years for a 30 year mortgage), regardless of how much equity you have in the home. http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-from-my-loan.html http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove...
- 100k 11y ago
  Was looking for this comment. Also ignores HOA dues (if the home is a condo).
  - chockablock 11y ago
    Actually they got that one: There are sliders for both 'common fees' and the portion of same that is tax-deductible.
- hippich 11y ago
  recently i was pre-approved for a mortgage with just 5% down. this was for two loans actually, one is conventional 80% with typical interest rate, and one 15% 15 years loan at 6.5% interest rate. My plan was to pay off small one quickly and just use it to avoid selling current house before moving into new one. No PMI.
  - extra88 11y ago
    I think that's called a "piggyback mortgage." Yours is an extreme example (sounds like you'll pay off the 15 year loan within a year) but generally used when you can pay more initially because it's easier to pay off a loan early than to pay extra on your mortgage to get to 20% equity and end mortgage insurance payments. If you can get a low enough interest, the piggyback can be preferable (to PMI) even if you're not going to pay it off early, you just have to do that math.
bshimmin 11y ago
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.
- warkdarrior 11y ago
  And property taxes.
  - Someone1234 11y ago
    And routine maintenance and repair (e.g. complete roof replacements every 20 or so years). Owning a home is super expensive even without a mortgage. So even going into retirement with a paid off house, you'll still want to set aside a decent pot of gold to keep that house "going" even aside from utilities (some of which are optional anyway, like cable/landline).
- scarmig 11y ago
  Alternatively, you could save the $200k down payment, invest it, and invest any difference in lower monthly expenses to end up with a pretty nice nest egg after 30 years, and live off the capital gains.
  - stank345 11y ago
    You mean a $20k down payment, right? Most of us aren't buying million dollar homes...
    - tootie 11y ago
      Not just the downpayment. If your monthlies are lower you're earning interest on those savings as well.
    - guelo 11y ago
      Most of us aren't buying $100k homes either. National median home price is $219k. In the Sillicon Valley area it's $900k.
ernestipark 11y ago
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.
codegeek 11y ago
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.
- j_baker 11y ago
  I don't see why living in a home and investing in it are mutually exclusive. The way I see it, my monthly housing payment is an investment in addition to a cost of living. Sure it costs more in maintenance, but you also get more customizability. You can paint the walls whatever color you like. You can tear the carpet up and replace it with hardwood or vice versa.
mfringel 11y ago
Showing the sensitive and non-sensitive variables as a greyed out bar graph "behind" the slider is a brilliant bit of data visualization.
xahrepap 11y ago
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 11y ago
  There's no app because: - Cars vary widely in how they hold value (for example: http://www.autotrader.com/research/article/car-news/209232/2013-nissan-leaf-resale-value-forecast-lowered.jsp http://www.autotrader.com/research/article/car-news/209232/2...) - 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 11y ago
    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.
- tinbad 11y ago
  There's a lot of factors to determine whether it's better to buy or lease but the rule of thumb is usually: if you drive not more than 15,000 miles a year and like to get a new car every 2 or 3 years leasing is for you. If that's not the case it's almost always financially better to buy. This is if you're in the US though, European leases are usually differently structured and this rule does not apply.
- cookiecaper 11y ago
  Leasing a car is a way to get a car that you can't afford to buy; it's for people who want to trade more money so they can enjoy a nicer car. Financially, buying a car is almost always more sensible if you can afford it. Exceptions to this would be highly specific and a generalized app probably wouldn't be helpful.
grimmdude 11y ago
Equity?
oliv__ 11y ago
The nytimes is really killing it with all these neat infographics and cool article layouts/animations! Congrats!
pitt1980 11y ago
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
- ryandrake 11y ago
  In your example, renting is the only option if you don't have that $30K to put down.
- chockablock 11y ago
  > where are all my savings from renting again? I'm not sure who you're railing against. Plugging in your numbers to the linked post says you should only rent the Brockwell Dr. house if you can get it for less than $850/mo.
  - pitt1980 11y ago
    if the tone came off as railing, I should have dialed it back a bit its strikes me that a big issue with renting is the liquidity of the market you're renting in especially if you have kids, and changing school districts becomes a big deal all in all, I'd rather not make a 30 year bet on the US residential real estate market with a whole mortgage worth of my net worth but its seems currently I have to pay a pretty steep premium to make the opposite bet
deleted 11y ago
[deleted]
pessimizer 11y ago
The home price growth rate is decisive here. If you expect it to be flat or negative, the scales tip heavily towards renting.
jodah 11y ago
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 11y ago
  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.
- bmm6o 11y ago
rgbrgb 11y ago
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.pdf http://ecedweb.unomaha.edu/neba/journal/EBJIP2009NiDecker.pd... [1]: https://www.openlistings.co/ https://www.openlistings.co/
- bane 11y ago
  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.
mathattack 11y ago
Great calculator! I like that they take into account the opportunity cost, or foregone investment income.
carsongross 11y ago
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 11y ago
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.
cko 11y ago
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 11y ago
  > 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 11y ago
    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 11y ago
      > 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.
Simulacra 11y ago
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...
Simulacra 11y ago
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.

76 points by bane 11y ago

It's flawed since it does not allow to specify a target market. I can't find a comparable rental in my market at the reported price.

deleted 11y ago

[deleted]

t_fatus 11y ago

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 11y ago
It does take into account the sale of the house when you leave it.

southphillyman 11y ago

Ignores mortgage insurance for down payments < 20%

ortuna 11y ago
Yea this is usually significant
- inmyunix 11y ago
  I've seen a quote for $100/mo for a $300k mortgage.
  - deleted 11y ago
    [deleted]
  - colinyoung 11y ago
    That's about right.
verelo 11y ago
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 11y ago
  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 11y ago
    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
  - matwood 11y ago
    VA loans are great. No PMI, no down payment, and listed mostly fixed fees for origination.
- southphillyman 11y ago
  Mostly agree, but I think the vast majority of primary home buyers don't put down 20%
- ryandrake 11y ago
  I don't agree this is true for the vast majority of situations. If you have the income to support the higher monthly payments, it's a viable option. I put down less than 10% and am willing to live with the higher rate and Mortgage Insurance in order to Not Be Renting. And if you can eventually pay the loan down a bit such that you end up with 20% equity, the MI goes away. Median home price in Bay Area is what, $900K or so? 20% of that is $180K in cash. I don't know many people who have this, yet there are plenty of home owners here, and I wouldn't be willing to say that the majority of them made a bad decision.
  - 11y ago
switch007 11y ago
I've not heard of mortgage insurance. Don't lenders just give higher interest rates to riskier borrowers?
- altcognito 11y ago
  No, for reasons which relate to overconfidence of bankers and their ability to rate credit: https://en.wikipedia.org/wiki/Mortgage_insurance#History https://en.wikipedia.org/wiki/Mortgage_insurance#History
- sjg007 11y ago
  Both apply. Rate is typically credit based but also depends on the loan amount. PMI is for <20% down except in special cases.
- yourapostasy 11y ago
  If you are a higher-than-average risk borrower and put down less than 20%, you get hit with both a higher interest rate than average risk borrowers receive, and you must pay mortgage insurance until you reach 20% equity. To add insult to injury, it is extremely common for the mortgage insurance companies and the mortgage servicing companies (not always the same) to simply keep charging borrowers the mortgage insurance fee even after the borrower reaches 20% equity.
  - extra88 11y ago
    Mortgage insurance payments end at 20% equity but you must ask for it to end. PMI automatically ends when you reach 22%. It also automatically ends if you are halfway through your mortgage schedule (e.g. 15 years for a 30 year mortgage), regardless of how much equity you have in the home. http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-from-my-loan.html http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove...
100k 11y ago
Was looking for this comment. Also ignores HOA dues (if the home is a condo).
- chockablock 11y ago
  Actually they got that one: There are sliders for both 'common fees' and the portion of same that is tax-deductible.
hippich 11y ago
recently i was pre-approved for a mortgage with just 5% down. this was for two loans actually, one is conventional 80% with typical interest rate, and one 15% 15 years loan at 6.5% interest rate. My plan was to pay off small one quickly and just use it to avoid selling current house before moving into new one. No PMI.
- extra88 11y ago
  I think that's called a "piggyback mortgage." Yours is an extreme example (sounds like you'll pay off the 15 year loan within a year) but generally used when you can pay more initially because it's easier to pay off a loan early than to pay extra on your mortgage to get to 20% equity and end mortgage insurance payments. If you can get a low enough interest, the piggyback can be preferable (to PMI) even if you're not going to pay it off early, you just have to do that math.

bshimmin 11y ago

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.

warkdarrior 11y ago
And property taxes.
- Someone1234 11y ago
  And routine maintenance and repair (e.g. complete roof replacements every 20 or so years). Owning a home is super expensive even without a mortgage. So even going into retirement with a paid off house, you'll still want to set aside a decent pot of gold to keep that house "going" even aside from utilities (some of which are optional anyway, like cable/landline).
scarmig 11y ago
Alternatively, you could save the $200k down payment, invest it, and invest any difference in lower monthly expenses to end up with a pretty nice nest egg after 30 years, and live off the capital gains.
- stank345 11y ago
  You mean a $20k down payment, right? Most of us aren't buying million dollar homes...
  - tootie 11y ago
    Not just the downpayment. If your monthlies are lower you're earning interest on those savings as well.
  - guelo 11y ago
    Most of us aren't buying $100k homes either. National median home price is $219k. In the Sillicon Valley area it's $900k.

ernestipark 11y ago

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.

codegeek 11y ago

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.

j_baker 11y ago
I don't see why living in a home and investing in it are mutually exclusive. The way I see it, my monthly housing payment is an investment in addition to a cost of living. Sure it costs more in maintenance, but you also get more customizability. You can paint the walls whatever color you like. You can tear the carpet up and replace it with hardwood or vice versa.

mfringel 11y ago

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

xahrepap 11y ago

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 11y ago
There's no app because: - Cars vary widely in how they hold value (for example: http://www.autotrader.com/research/article/car-news/209232/2013-nissan-leaf-resale-value-forecast-lowered.jsp http://www.autotrader.com/research/article/car-news/209232/2...) - 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 11y ago
  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.
tinbad 11y ago
There's a lot of factors to determine whether it's better to buy or lease but the rule of thumb is usually: if you drive not more than 15,000 miles a year and like to get a new car every 2 or 3 years leasing is for you. If that's not the case it's almost always financially better to buy. This is if you're in the US though, European leases are usually differently structured and this rule does not apply.
cookiecaper 11y ago
Leasing a car is a way to get a car that you can't afford to buy; it's for people who want to trade more money so they can enjoy a nicer car. Financially, buying a car is almost always more sensible if you can afford it. Exceptions to this would be highly specific and a generalized app probably wouldn't be helpful.

grimmdude 11y ago

Equity?

oliv__ 11y ago

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

pitt1980 11y ago

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

ryandrake 11y ago
In your example, renting is the only option if you don't have that $30K to put down.
chockablock 11y ago
> where are all my savings from renting again? I'm not sure who you're railing against. Plugging in your numbers to the linked post says you should only rent the Brockwell Dr. house if you can get it for less than $850/mo.
- pitt1980 11y ago
  if the tone came off as railing, I should have dialed it back a bit its strikes me that a big issue with renting is the liquidity of the market you're renting in especially if you have kids, and changing school districts becomes a big deal all in all, I'd rather not make a 30 year bet on the US residential real estate market with a whole mortgage worth of my net worth but its seems currently I have to pay a pretty steep premium to make the opposite bet

deleted 11y ago

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pessimizer 11y ago

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

jodah 11y ago

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 11y ago
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.
bmm6o 11y ago

rgbrgb 11y ago

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

bane 11y ago
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.

mathattack 11y ago

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

carsongross 11y ago

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 11y ago

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.

cko 11y ago

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 11y ago
> 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 11y ago
  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 11y ago
    > 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.

Simulacra 11y ago

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...

Simulacra 11y ago

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.