Any consequences to never owning a home?

[mandyms]

Thinking that it's the American Dream, I had always strived to own a home. Until I actually started looking into what it takes in terms of down payment, upkeep, etc; especially factoring in how inadequate I am in getting my retirement and EF funded. The biggest thing I never thought of was the "lifestyle" mentality. I like having my weekends free for spending time with my child and other family and friends. I don't think I could handle the little projects, extra cleaning, yardwork etc on my own. I LOVE my current apartment and could see myself living here for a very long time.

If I were to never purchase a house, would there be any negative consequences even when I get to my retirement years (which is about 30 years away)? The only thing I could think of was the possibility of lack of rent control, etc. Has anyone done the permanent renting route?

[raeoflyte]

Having a paid off home can be a nice perk of retirement. Of course, I day dream of being able to call the landlord to fix things instead of just deferring them to the elusive 'someday'.

I think more people are happy to rent especially these days.

I'll be curious to see what others think.

[tractor]

I don't think never owning a home is a bad thing. It sounds like your comfortable renting, you said you don't like to do maintenance things around the place (cutting the grass, etc), then ownership is probably not for you. I know a couple who have never owned a home and are now comfortably in retirement as they were able to put money away throughout their working career. Not being tied down to one place gives them the ability to move around all they want, and they have never accumulated all the extra junk that most people do just because they have a place to put it. I'm especially bad at this, moving will never be an option for me as it will take several years just to sort through all the stuff I have acquired.

I also believe that while owning a home can become a significant asset, the reality is, being able to cash out that asset (usually to buy more stuff) is much too easy and has led to out current housing "crisis". I think if you can be diligent about putting money away (living below your means), you will be further ahead if you rent instead of buying a house just because you think you should.

[Deleted]

The only consequences I can think of are a relaxed disposition and enlarged bank account.

[Urban Chicago]

No real consequences, but if you hate maintenance, you could always consider a condo. Or you could wait until you're 50 or so and buy a condo in a senior community.

I did the condo thing and hated it, mostly because I couldn't garden and such.

[mandyms]

Urban, that's the only think I wish for. I don't have a balcony or patio. Haven't really asked about putting some pots outside and I barely have room near my kitchen window for the little houseplant that has managed to make it with the poor lighting.

But I figured 150,000 just for a garden wouldn't be that cost effective...

[Savoir Faire-Demogague in NJ]

Thinking that it's the American Dream

The American dream is owning one's own business. Slick marketing by the real estate industry has convinced the population that home ownership is the be all and end all.
Homeownership is a lifestyle choice.

[cronewitch]

Inflation protection from owning like you said rent control. I have a mortgage of 612.47 a month until I am 92. When I start retirement that will be about what rent would be when I add in taxes and insurance. In 30 years rents could double or triple when my housing cost is only from increases in taxes and insurance. So over the next 30 years my housing cost will be a smaller and smaller percentage of income and in 30 years a drastic drop. If I paid off the house before retirement by removing money from investments I would be spending a smaller percentage right away but not then have inflation protection by having housing percentage decreasing.

Renting has some advantages like you can downsize easily, not hard to give up living alone to move in with family and you can buy a home later or move to another state cheaply. Also most people rent less space than they are willing to buy so if you rent a 3 bedroom apartment with 2 baths and a garage it would be extreme but not in a house you would buy. You will save on utilities in a smaller space and need less stuff without a yard.

Buying a smallish condo might be a nice compromise.

The next 30 years before retirement count too. If you bought an apartment the size you are renting now in 10 years the payments might be less than rent and in 20 years even a smaller percentage of income and in 30 years just taxes and insurance and condo fees.

Using a home as an ATM is great too, I have been in my home since 1992 and owe the same amount as when I bought it. Meanwhile it has paid for a truck, boat and car and other stuff and I took out 114K to invest. All financed at 3.458% now and some at 2.24%. Homeowners can have HELOC so they can borrow money cheap when they need it but not owe when they don't.

[Sum Dum Gai]

The biggest consequence I can think of is that you have no protection from inflation with regards to your housing costs. Go ask your parents or grandparents what an apartment rented for in your area 30 years ago. Now figure out what average rent is right now. Now figure out what percentage the rent has increased over that time. Ok, now take your current rent multiply it by the factor you just figured out and tell us what you'll be paying in rent 30 years from now when you want to retire? Is the number scary big? I know it would be for this area. That means you need even more money to retire since your housing costs will be larger and growing in retirement.

Owning a house can be a PITA, but you also lock in your housing costs to a large extent. My taxes could always go up, but I know exactly how much my monthly payment will be in 30 years. If there's any inflation at all, which our government and Fed always aim for, the amount I'm paying for housing in 15-30 years will probably look tiny compared to average rents.

[Small Biz Owner]

Greater positive cash flow in retirement. That is, if your home is paid off before retiring. Just taxes, utilities and insurance as expenses.

[qofcc]

If I were to never purchase a house, would there be any negative consequences even when I get to my retirement years (which is about 30 years away)? The only thing I could think of was the possibility of lack of rent control, etc.

The risk of no rent control is really no different than the risk of your taxes going up every year on a paid off house. There are stories all the time about older folks who have to sell their homes in retirement because they can't afford the taxes anymore.

The only negative consequence I could see is that buying a home and keeping it until it's paid off is a kind of forced savings plan that you don't have as a renter. As long as you're saving the money you would have been putting into home equity, then you should be ok.

[brdsl]

I like the security of ownership. I don't have to get out on a whim, the building cannot be sold to another investor or converted and asked to leave or the building being left unimproved.

My biggest fear of being a perma-renter....

One day you come "home" and your told you have to leave, or rents are raised above your income level.

Negative consequences of never owning, the only one I can think of is having to pack and move at 80....after being in that place for 30 years.

I think a home forces you to save, for a later generation.

btw. The upkeep, etc....is typically overstated.

[Sum Dum Gai]

The risk of no rent control is really no different than the risk of your taxes going up every year on a paid off house.

Except that rents have historically risen exponentially higher than taxes. The people who have to sell their homes because they can't afford the taxes, wouldn't have been able to afford rent in the same area decades earlier so would have been forced out even sooner.

[Gardening Grandma]

In times of inflation, elderly people were sometimes forced from their homes because their property taxes rose to the point where they couldn't afford them on fixed incomes. Our state gives the elderly a break on property taxes, but only for lower income levels.

Home ownership isn't for everyone and it's a wise person who recognizes that it may not be for them. If anything happened to DH, I'd probably sell our home and rent an apartment. Way too much maintenance for one person.

Once you're retired, you have the option of moving to a lower cost of living area where rents are less. If you are a home owner, you don't have the option of moving as easily or quickly.

[mandyms]

Good things to think about. Dark, karma for your tagline; it gave me a giggle.

[Savoir Faire-Demogague in NJ]

I like the security of ownership. I don't have to get out on a whim, the building cannot be sold to another investor or converted and asked to leave or the building being left unimproved.

The Supreme Court disagrees with your statement with their Kelo vs. New London decision that rocked the country.

[april47]

Over the years I think I have not done too well buying. I don't regret having a house when my kids were growing up. I think it's better for raising kids, but I was never in the right place at the right time to actually make money. Besides taxes, upkeep, and wanting to DO things to the house it can be a money pit. Recently sold my last house so I could afford to retire. I live now in a senior only aprtment complex and never have I felt so free. I decorated it and it now feels like "home". I hated yard work. My late husband did that. I'll stick a potted plant on my patio in the spring and I'm done !

[Sum Dum Gai]

The only reason we bought a place was to lock in our housing costs as much as possible. I had to twist the wife's arm a bit, since she was perfectly happy renting. If you look at the historical housing data on the census page you see that gross average rents tend to triple every twenty years. Rents in our area average right around $1,600 for multi unit apartments, houses are a bit more. So twenty years from now, they could be at around $4,800 a month, and twenty years later, ten years into my retirement, they'd be about $14,400 a month. I don't know about you, but those numbers scare the ever loving hell out of me. Granted my pay would theoretically be climbing along with inflation, but close to $15k a month in rent for an average apartment is just disgusting.

Now it's possible that if invested the $200 a month difference between our current mortgage and our old rent it would grow to enough to more than make up for the higher expected housing costs later. But I doubt it. That difference probably won't even exist in 5 years as rental rates climb.

[sunuva]

There aren't necessarily any consequences. But from your leading sentence, it sounds to me like your "American Dream" is different than your current lifestyle situation. There may be room for a focus adjustment in that rather than attempting to own a home for which your lifestyle is unaccustomed, why not see if you can own a home for which your lifestyle is accustomed. By that I mean, look at what it would cost you for home ownership in a building more closely matching your current apartment - perhaps owning an apartment rather than renting one.

The costs - comparing apples-to-apples can't possibly be much different. The landlord of the apartment that you are renting owns that apartment (in effect). So unless your landlord is renting to you at a cost to his pocketbook, the rent you are paying satisfies his cost including taxes, maintenance, upkeep, etc.

I think the reason people get so hung up on cost difference between owning and renting is that they aren't comparing like structures. And if they aren't comparing like structures then it is reasonable to expect cost differences.

So owning does put a little something away in a "kitty." Renting is a cost that can't be recouped. Owning (for the same cost as renting) at least recoups some of the cost (if not all of it).

Owning puts the control with you. Renting puts the control with someone else - including telling you to leave, what you can and cannot do in your own domicile.

I think the American Dream is more of one of independence than it is of "owning stuff."

[Plain Old Petunia]

If you don't want to own a home, then don't buy one. It's not so easy (or cheap!) to get out of one. There are other paths to wealth. If you are willing to live in creative housing arrangements then rising rents are less of a threat.

[qofcc]

Except that rents have historically risen exponentially higher than taxes. The people who have to sell their homes because they can't afford the taxes, wouldn't have been able to afford rent in the same area decades earlier so would have been forced out even sooner.

True, but there is a regional component to this also.

I was thinking about NY property taxes, which are around 5% in some areas and I'm sure you're thinking about California property taxes which are what? about 1.5% I bet our house prices and rental prices are quite different also.

Comparing an apartment to a house is a bit like apples to oranges, but this was my thought process:

In a nearby suburb, you can your own brand new McMansion for $250K and pay $1K/mo in property taxes, plus your P&I of course or you can rent a brand new luxury apartment for $1K. If you don't care about having the extra space and the private yard and being able to fix it up however you'd like and you don't want to deal with maintenance, renting the apartment and investing the money you would have been paying toward P&I might be the better choice because housing in this area has never beaten the average return of the stock market. We've been appreciating at 2-3% steadily since time out of mind.

If you're comparing renting a house vs. buying an identical house, then buying is usually going to be the better choice over the long term.

[Deleted]

Mar 11, 2011 14:46:59 GMT -5 Savoir Faire-Demogague in NJ said:

I like the security of ownership. I don't have to get out on a whim, the building cannot be sold to another investor or converted and asked to leave or the building being left unimproved.

The Supreme Court disagrees with your statement with their Kelo vs. New London decision that rocked the country.

What a fucking travesty. And to kick the ex homeowners in the nuts a few more times, they haven't even done anything with the land that they took.

[Savoir Faire-Demogague in NJ]

What a fucking travesty. And to kick the ex homeowners in the nuts a few more times, they haven't even done anything with the land that they took.

You are offending me with your obscene language....

[thyme4change]

To be on the safe side, I would make sure your savings rate was 2% of your purchase price the first year, and 2% of 104% of your purchase price the second year and 2% of 104%*104% of your purchase price the third year, etc. This savings would be in addition to your normal savings rate. Hopefully that will be possible because you can save money by not doing all the maintenance and crap on your place. But this savings rate would mimic your (historical average) growth rate on the house.

So, for example - let's say you were going to buy a $100k house, but instead you rent.

Year 1 - save an extra $2k
Year 2 - save an extra $2,080
Year 3 - $2163
etc.

If you get an 8% return on that money, at the end of 30 years you will have about $325k in the bank, and if real estate follows historical norms, you house would have been worth about the same.

[Deleted]

Mar 11, 2011 15:08:54 GMT -5 Savoir Faire-Demogague in NJ said:

What a fucking travesty. And to kick the ex homeowners in the nuts a few more times, they haven't even done anything with the land that they took.

You are offending me with your obscene language....

argh

[Deleted]

HMM.... I did some calculations on different scenarios. What I found is it really depends on the property tax rates, the difference between rents and mortgages, and investment return rate versus home appreciation. So it is really hard to predict without a crystal ball.

In my first attempt I made both rent and home appreciation 2% a year, property taxes 1% of the home value, rate of return on investment 8%, and rents 80% of the first year home mortgage. The difference between the home mortgage and rent was invested. The home buyer did much better. The rent began exceeding the mortgage in year 14 years. At the end of 30 years, the 200,000 house was valued at $362,200 and the renters investment were 153,700.

In scenario 2 both rent and home appreciation were 2% a year, property taxes 2% of the home value, rate of return on investment was 8%, and rents were originally 70% of a home mortgage. The mortgage didn't drop below the rent rate until year 27, investments were $386,800 for the renter after 30 years and the home value was still $362,200.

There are so many variable that can change the outcome. I know Phil always assumes 11% ROI and there are tax implications, that I completely ignored and maintenance costs.

I like the idea of owning my home by the time I retire to hedge against massive home appreciation. I know people who rented for decades and were priced out of the neighborhood, when it gentrified.

[shelby]

Now it's possible that if invested the $200 a month difference between our current mortgage and our old rent it would grow to enough to more than make up for the higher expected housing costs later. But I doubt it. That difference probably won't even exist in 5 years as rental rates climb.

Read more: notmsnmoney.proboards.com/index.cgi?action=display&board=finance&thread=4643&page=1#ixzz1GKVTXIgG

Dark are you factoring in opportunity cost on the down payment? If someone asked already sorry didn't read whole thread.

[Savoir Faire-Demogague in NJ]

At the end of 30 years, the 200,000 house was valued at $362,200 and the renters investment were 153,700.
In scenario 2 both rent and home appreciation were 2% a year, property taxes 2% of the home value, rate of return on investment was 8%, and rents were originally 70% of a home mortgage. The mortgage didn't drop below the rent rate until year 27, investments were $386,800 for the renter after 30 years and the home value was still $362,200.

The piece of the puzzle no one mentions and neither do you is that the renter in each scenario has more options, not to mention either $153K or $362K in their pocket. The homeowner has nothing.

[cronewitch]

For people like my parents and grandparents owning was better. They were not investors so the money they saved if they did save would be in CDs.

They got homes without mortgages before retirement. Mom for example got hers around 1974 and sold in 2009.

If they had invested the 30K or so the house cost for 35 years in bank CDs while paying 35 years of rent they wouldn't have broken even. Rents for houses were about $400 and now would be 3-4 times as much. Investing 30K in a bank account CDs even in the Carter years wouldn't have keep up with inflation. Mom sold the house for 215K at 5% interest over the next 30 years. No way saving the same amount as they spent for the house have gotten her that stream of income. She in the last few years was low income elderly so her property taxes were reduced to about $300 a year.

[The Walk of the Penguin Mich]

The one thing you all are forgetting is maintenence and upkeep of property. Neither of these are paid by the renter, but none have been included in the cost of homeownership along with taxes.