When is it better to just rent a house?

[Brian Elfert]

I'm wondering at what point is it better to just rent a house? I have my house on the market. The problem is trying to find a replacement house that I can afford and doesn't need major repair. Most of the houses in my price range will need a new furnace and air conditioner probably within five years and the windows and siding usually will need replacement at some point. Good windows and siding can easily cost $50,000 and then another $10,000 possibly for a good furnace and air conditioner. (Yes, my parents spent $50,000 for really good windows and really good siding a few years back.)

I spend $1,880 a month for taxes, mortgage, and insurance for my current house. It almost seems like it would be better to just spend $1,500 a month on rent and let the landlord deal with all the expense of owning a house. I guess the disadvantage is most landlords will never upgrade the house and spend the least amount of money possible. On my house if something cosmetic breaks I fix it. A landlord would likely never fix cosmetic issues. Landlords would be likely to put in the cheapest least efficient furnace possible as the tenant has to pay the gas bill. There would be zero incentive for me to invest any of my labor and money on fixes to a rental home. Besides, the landlord wouldn't want the tenants making repairs.

My current house is worth $335,000 and the houses I have been looking at are between $150,000 and $250,000. I am really trying to be at $200,000.

[Mike Chance in Iowa]

You need to think about some other deciding factors. Would you rent long-term? Do you have animals or hobbies or businesses that would prohibit you from renting certain homes? Can you live in a home that you do not have the deciding factor when it comes to fixing repairs? Do you want to be locked into a lease? Are you prepared to move a second time if you have issues with your landlord?

[Jim Matthews]

If it's a pure money decision, a Price to Rent ratio above 20 means that the cost of ownership will exceed the cost of renting.

From GetRichSlowly:

One way to tell whether it’s better to rent or buy is by checking out the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced. Figuring a P/R ratio isn’t too tough. All you need to do is:


Find two similar houses (or condos or apartments), one for sale and one for rent.
Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.


If you're in transition, renting make perfect sense.
Check out any potential rental after 6pm, when the neighbors are home.

Preferably, do so without an agent running interference.




http://www.getrichslowly.org/blog/2010/01/27/does-renting-make-sense/

[Brian Elfert]

You need to think about some other deciding factors. Would you rent long-term? Do you have animals or hobbies or businesses that would prohibit you from renting certain homes? Can you live in a home that you do not have the deciding factor when it comes to fixing repairs? Do you want to be locked into a lease? Are you prepared to move a second time if you have issues with your landlord?

One issue I didn't think about is parking my motorhome. Most homes won't have a space for it without doing some sort of prep work. There are rentals out in the country that have buildings large enough for a motorhome.

I would probably have to store it somewhere and I really don't want to do that.

[Ryan Mooney]

One issue I didn't think about is parking my motorhome. Most homes won't have a space for it without doing some sort of prep work. There are rentals out in the country that have buildings large enough for a motorhome.

I would probably have to store it somewhere and I really don't want to do that.

There are motor home and boat storage yards all over around where I live. Of course you have to figure the monthly for that into the total cost.

[Brian Kent]

Do you have any noisy hobbies like woodworking? My decision point is how long I would want to live there. Less than 3? More than 5? The longer the stay the more repairs and upgrades and equity make sense.

[Brian Elfert]

There are motor home and boat storage yards all over around where I live. Of course you have to figure the monthly for that into the total cost.

Sure, there are storage yards, but I work on my motorhome a lot and I can't do that at a storage yard. Locally, they cost close to $100 a month. Right now, my motorhome is stored away behind my house where nobody can really see it except the neighbors.

I think renting might be out due to the motorhome part. I didn't even think of that when I looked online for rental houses.

[Mike Chance in Iowa]

Sure, there are storage yards, but I work on my motorhome a lot and I can't do that at a storage yard. Locally, they cost close to $100 a month. Right now, my motorhome is stored away behind my house where nobody can really see it except the neighbors.

I think renting might be out due to the motorhome part. I didn't even think of that when I looked online for rental houses.

I'm with you there. We have storage space on our rental property to park it, but no proper cover for it. On Sunday we discovered the factory had not properly sealed a marker light in the top front. This is going to take a bit of work to repair all the water damage and that would not be easy to do at some storage place. We already tore into it and I can't imagine needing to make several trips back and forth to gather all the necessary tools & supplies we have used so far. Plus, if you don't have place to park it at the rental, it becomes very cumbersome to load & unload it for trips.

[Jim Matthews]

Not to be flip,
could you just live in the RV
while you shop for more permanent digs?

How big is it, anyway?

[Matt Meiser]

Have you sat down and figured out what moving is going to cost you after realtor commission, moving expenses, utility changes, etc, etc, etc?

[Brian Elfert]

Have you sat down and figured out what moving is going to cost you after realtor commission, moving expenses, utility changes, etc, etc, etc?

Yes, I have. It isn't cheap to move, especially the realtor's commission. I made some stupid financial decisions regarding my house nearly a decade ago and will almost certainly need to sell it before April 2016 or face possible foreclosure on the house.

Jim, I could live in the RV while finding a home, but I have a place to live if/when my current house sells. It isn't practical to live in the motorhome over the winter due to heating costs. All the campgrounds/RV parks close for the winter anyhow.

[Brian Ashton]

I happened upon a website a couple years ago that investigated the point in ones life were it was actually more economical to rent than buy when it came to return on investment. I've tried googling it but as usually when you really want to find something you can't... In a nut shell, by looking at the financial costs such as: rent, loan costs, inflation, property value increases and such it concluded that buying a house after approximately 50 was a bad investment compared to renting.

[Jim Matthews]

Gotcha.

Too big to park on the Lake.
Plans to keep the RV, I gather?

No better time to sell one, than Spring...

[Steve Peterson]

I happened upon a website a couple years ago that investigated the point in ones life were it was actually more economical to rent than buy when it came to return on investment. I've tried googling it but as usually when you really want to find something you can't... In a nut shell, by looking at the financial costs such as: rent, loan costs, inflation, property value increases and such it concluded that buying a house after approximately 50 was a bad investment compared to renting.

I wonder if this is because a 30 year mortgage started after age 50 is a bad idea? Then why not get a 15 year mortgage and have it paid off by the time you are 65 and ready to retire? The cost is about 50% higher, but it will also be paid off in half the time.

Steve

[Larry Browning]

Have you considered a relocation move? $200K in my neck of the woods would get you a pretty nice home.
Here is just one of many examples.
http://www.homes.com/property/5629-e-us-64-hwy-alma-ar-72921/id-600012152662 (http://www.homes.com/property/5629-e-us-64-hwy-alma-ar-72921/id-600012152662/)

Your looking at $80 - $90 a square foot.

[Greg R Bradley]

What a different world. In most of Southern California, $80-90 per square foot is the price of an empty lot.........

[Brian Elfert]

Have you considered a relocation move? $200K in my neck of the woods would get you a pretty nice home.
Here is just one of many examples.
http://www.homes.com/property/5629-e-us-64-hwy-alma-ar-72921/id-600012152662 (http://www.homes.com/property/5629-e-us-64-hwy-alma-ar-72921/id-600012152662/)

Your looking at $80 - $90 a square foot.

That is a really nice home, but I'm not looking to move out of the Minneapolis metro area for a variety of reasons. That home would really be too big for me anyhow. My cost of housing would go way down with that house, but I suspect I would take a substantial pay cut too. I like the low property taxes. That is about 30% of what I pay for my house. Granted, my house is worth more, but a similar house here would still pay $500 to $1000 a year more. I would be happy to only pay $2,500 a year for a $200,000 house in Minnesota.

You certainly can't buy a house like built in 2002 for under $200,000 in the Minneapolis metro area.

[Dave Sheldrake]

Some different worlds you guys have over there, I'm in the middle of moving works and house,

10,000 SqFt works here cost me £961,000 5 years ago.
15,000 SqFt works in Wales where I'm moving to just cost me £83,500.

Here my business rates (a kind of tax on commercial venture buildings) £56,000 a year.
In Wales where I'm moving to, £0.00 until 2017 when it goes to £2,200 a year.

cheers

Dave

[Jim Matthews]

The scale is very different, in North America.

How long does it take to get from Cardiff to London,
presuming your car starts on the first go?

The OP is trying to sort out housing in a thriving city that is subject to very harsh Winters.

Driving 2 hours plus in Minneapolis is very different than the M4.

[Dave Sheldrake]

I guess my only take would be at 50+ you could be paying rent for hopefully in excess of 30 years and not end up owning a brick of it, I have no idea what rental or purchase costs are over there though :(

cheers

Dave

ps: M4 is pretty good, past 8pm and notwithstanding roadworks it's pretty much empty.

[Brian Elfert]

How I look at it is, yes, you'll own the home free and clear at age 80 if you take out a 30 year mortgage at age 50. However, in those 30 years you'll probably replace the roof at least once and maybe twice, replace the furnace, water heater, and A/C once or twice, and probably replace the kitchen appliances. You may also need/want new windows and siding in those 30 years. You're way over just the cost of the mortgage after 30 years.

As a renter, your only expense is the monthly rent. The landlord has to worry about the rest. Now, the landlord is probably going to want to put in the cheapest possible A/C and furnace so the renter could have higher utility costs. If the windows need replacing they will probably be cheap vinyl windows that may be drafty.

There would need to be a lot of analysis done between renting and a mortgage to see which way is cheaper. There is a lot to be said about renting and just paying a set amount every month. You never have the surprise $4,000 furnace replacement in the middle of the winter. Probably the only rental home I would be happy in is a high end $350,000+ home, but I couldn't afford the rent. A landlord of that expensive a house is probably not going to cheap out on fixing things.

[Fred Chan]

With a mortgage there may be unexpected repairs to be done but the mortgage payments will be consistent for thirty years. One thing that is guaranteed to happen if you rent is that the rent will go up. The big difference is that in 30 yrs instead of you owning the house it'll be the landlord that owns it debt free.

[Dave Sheldrake]

I guess that's the difference in climate and home construction that shows, stuff like windows and roofs here tend to outlast generations with walls being brick or stone as well. Houses do tend to be more expensive here as well though, the current UK average house is £250,000 ($400,000) with London prices being closer to £500,000 ($800,000). If you want something old or big/different here then prices can soon reach $1m+.

That said I know what you mean about costs, I'm in the middle of replacing the roof on mine (the roof is 350 years old) and that's going to cost $60,000 to get done but should last another 300 years.

cheers

Dave

[Moses Yoder]

I think the cabin Thoreau built was 100 square feet. I have always wanted to try that. I could have an inflatable mattress, a dorm refer and camp stove. I would want high speed internet and a nice recliner to set on with my computer and I would be good to go. An outhouse would be in addition to the 100 foot. It would be somewhere in the south where it is warmer and I would use just hand tools for my wood hobby outdoors. What more would I need? There would be great meaning to this life. I am currently married, unable to pursue this dream of mine.

[Brian Elfert]

I guess that's the difference in climate and home construction that shows, stuff like windows and roofs here tend to outlast generations with walls being brick or stone as well. Houses do tend to be more expensive here as well though, the current UK average house is £250,000 ($400,000) with London prices being closer to £500,000 ($800,000). If you want something old or big/different here then prices can soon reach $1m+.

That said I know what you mean about costs, I'm in the middle of replacing the roof on mine (the roof is 350 years old) and that's going to cost $60,000 to get done but should last another 300 years.


One of the big issues with windows here In Minnesota where it gets quite cold in the winter is the older windows tend to be drafty. The drafts drive up energy costs. Many older houses were built in an era when energy was cheap and the heater just ran longer to keep the house warm. Heating costs have gone up quite a bit since then. The other issue with the really old windows is the work to keep them in good condition. They need to be painted and possibly reglazed fairly regularly. Some people really like the look of the old wooden windows and will do the work to keep them in good shape. The final issue with really old wooden windows is they just don't open or close very well compared to modern windows.

Roofs in the USA tend to be asphalt or fiberglass shingles and they generally will last 20 to 30 years. My roof is 2,000 square feet and will cost me $7,400 to have it re-roofed with new fiberglass shingles in the next few weeks. Some areas of the USA do use a lot of tile roofs that last longer, but also cost a lot more up front. I would use metal shingles if I was living in a house where I planned to stay the rest of my life.

[Matt Meiser]

I would think tile wouldn't do well with ice and freeze thaw cycles.

[Brian Elfert]

I would think tile wouldn't do well with ice and freeze thaw cycles.

That would be why they are mostly used in the southwest area of the United States. I do occasionally see an older building in the Minneapolis area with a tile roof.

[David Weaver]

There are a lot of roofs here that are slate and tile in older areas of the city, and we get a lot of freeze and thaw. I have no idea how much it costs to maintain them, though. There are companies that do slate and tile repair only, but it may be a tradeoff if you have an older roof - cheaper to maintain the slate or tile than replacing. I'd assume that tiling a roof now would be prohibitive unless it was on a pretty expensive structure.

[Dave Sheldrake]

It's interesting to read the differences between our countries Brian :)

Dave, slate will last literally hundreds of years if it is taken care of (not walked on) and isn't a hard DIY job to lay (so long as you are comfortable working on roofs) that said we have a LOT of active slate mines here still so I'm not sure if it is expensive to buy the slates over there?

On another area, are heating costs over there high? ( I have oil fired (kerosene?) boilers) running water radiators all round the house and costs me about £1,500 a year to heat (with old not very efficient single glazed sash windows and solid stone non cavity walls)

cheers

Dave

[Brian Elfert]

I don't know any buildings locally with slate roofs. I have never seen a house in the surrounding area with a slate roof. Some of the older mansions in the city might have slate roofs. The USA wasn't even founded until 1776 so there aren't buildings hundreds of years old like in Europe. People in America tend to want new houses. Houses that are 50 to 60 years old are being demolished to make way for new larger houses locally. It is rare to find a house built before around about 1890 in Minnesota. The state wasn't being developed much before then. Some houses in my neighborhood were built in 1911 when a trip to St. Paul was a half day affair. Today with modern roads and modern cars it takes me under 10 minutes to drive to St. Paul.

Folks who heat with oil can easily spend $3000 to $4,000 on heat in a cold state. My house is very new and I spend less than $1,200 a year to heat a 2,600 square foot house in Minneapolis, Minnesota. Natural gas is generally the preferred heating fuel. I know people who own big old drafty homes who spend hundreds of dollars a month on natural gas during the winter months. 1,500 pounds seems high for heating a house in the UK where temps seem to be more moderate.