Renting as an adult is great. You have fixed costs for housing, you don’t have to worry about not loving a home or a neighborhood, you don’t need to be (overly) concerned with long term pricing fluctuations, and you don’t have to spend your time or money doing a lot of unexpected maintenance. If a raccoon eats a hole in your roof or your refrigerator breaks, you can just call your landlord and have it dealt with. You don’t have to be super assertive to know and communicate your rights as a tenant, so bad landlords can be less of a problem than when you were first starting out.

Before you really consider buying, you should check out at least one of the several calculators online that will help you assess the financial difference between renting and buying in your market (the NY Times calc is great.) This is a good starting point, but the tradeoffs are also worth discussing.

  • Comparison Shopping
    • When we were shopping in Oakley, OH we found that houses needed a budget of $350,000 for 1600 sq. ft. We were starting to consider the market overheated, and thought we might be better off seeking out an apartment or home with a rental price of $1 sq. ft. We found a couple that were nicer than the homes we were looking at, and considered biding our time until a market dip.
    • Our present fixer in Cincinnati is $375,000 for 2800 sq. ft. A rental price that would be equitable is $.63 per sq. ft, a substantially lower quality apartment than what would have been comparable in Oakley and in no way comparable to the home we’re fixing now.
    • Rent vs. buy should be looked at as a comparison between comparable properties; it isn’t entirely fair to compare a detached single family home to a mid rise apartment or vice versa. You need to know your taste and desires before making a decision about what you want. You can almost always find that style for sale and for rent, so make your comparisons honest.

  • When is Renting More Appealing
    • If you’re exceptionally busy, you might not want to go through the effort of maintaining a lawn, fixtures, and other things that might break around your home.
    • If you like to move around rentals tend to be a better value. If you find yourself moving every 2 or 3 years, you might want to rethink your strategy and move between market rate rentals. You’ll still get the new experiences with less effort and cost. Avoid seller’s risk and get a lower rate? Win:Win.
    • Your risk tolerance is low. Listen, things can and will go wrong with a house. Accidents happen, life happens, all sorts of things that are not insurable get damaged. Pay someone else to make it their problem.
    • You don’t have your finances in order. You need to consider the hidden costs of buying. If your hot water heater breaks and you need to use credit to repair it, you’ve drastically tipped the calculation towards renting.

  • When Buying is More Appealing
    • You like to put your own touch on things. I don’t mean a rug or a shower curtain. If you just have to have tile, fixtures, flooring, and other things the way you like them, you won’t be happy renting in most situations.
    • You need privacy. The single family home is great if you want to control when you interact with your neighbors or have trouble sleeping. You can tweak and tune things to fit your specific needs. Home rentals are readily available in some markets, but these tend to be in denser, urban environments. If you need to be further afield, the market will be much smaller.
    • If you consider homes investments. Now we’re in really sticky territory. Nicole and I have made good money and had good luck on residential real estate, but I’m really hesitant to ever call a home an investment. The re-expansion of the housing market since the housing crisis isn’t likely to continue to keep pace with the stock market over the long term (income growth and inflation growth would have to move in lock-step, plus a few other factors would need to change.) I think if you look at a home as a necessary expense, you’ll find yourself happier with the flow of the market.
    • Specific lifestyle requirements can also push you towards a home. We’re shopping for an electric car in the near future, so we’re insistent on living somewhere that provides a dedicated plug. Having 6 charging ports for a 100 unit apartment complex wouldn’t work for us, so we know which direction we need to go.
    • If you like to stay for a long time, buying makes the most sense. No one can make you move or make substantial changes to your property without your permission. Consider future development of the surrounding area before you buy a house to live in for decades.
  • Are there any mental traps?
    • If you put in a 100% downpayment to the calculator, it will tell you that you can afford a substantially nicer apartment. This is true, of course, but the reason isn’t inherently obvious. The opportunity cost of $xxx,xxx invested adequately today has historically been 7% per year after inflation. For $100,000, that is $7000 per year in new money.
      • So I shouldn’t make a big downpayment? Well, it all depends on your loan, risk tolerance, interest rate, and investment discipline. Use the calculator, decide what will let you sleep at night, and choose accordingly. Don’t make a choice that leaves you anxious all the time because I told you to.
    • I think it is pretty easy to end up in a situation where you need to compare properties that aren’t comparable. Make your budget, convert everything to purchase value (use the rent vs buy calc) and then setup a rate for different features when you’re comparing. Kitchen meets your needs already? I might but that down as a $20k bonus for that place. No off street parking? That could be minus $50k for me.
      • You can roughly convert rental numbers to purchase value by plugging in all the details (interest rate, how long to stay, down payment, etc.) and then moving the purchase price slider until it hits your rental rate.

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