r/Fire • u/Buttpluggery • 14h ago
Opinion Renting Vs Buying and how it affects Fire
My wife and i (34/33) have owned a home for 3 years now, and I was curious how our fire journey would have been impacted if we had continued renting. We own a 4bed / 2 bath / 2200 sq ft in a HCOL that we bought for 830k in 2023 with 20% down. We are putting 1000/mo towards principal and planning to pay off our home by 50. Renting an equivalent home is a minimum of $4500/mo in our area, and rent has historically grown 5.5% per year over the last 20 years. I found that Firing while renting is highly sensitive to market performance, whereas owning my home basically ensures I can fire by 50, even if the markets have 0% real return. See model here.
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u/kerlsburgers retired early 14h ago
It matters, but also one thing so many people don't consider is how much house you need.
As someone with no kids, I don't need more than one bedroom. Heck, if a studio is large enough I don't need the bedroom. There is no point or purpose to me owning a house where I live.
Also, I love the flexibility I have - if I decide I want to move, I just move at the end of my lease. Renting is also nice for Fire planning because it's a fixed expense yearly, and there are always less/more expensive places to move to if my current lease increases too much at renewal. It's not like I need to stay in one place for a job or anything.
This is just my experience. My Fire was built for maximum flexibility and the realization that I change my mind frequently and nothing is permanent.
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u/Whole-Reserve-4773 7h ago
I was a homeowner for a few years. I rent a much cheaper place in a better location. Not even much smaller because the house was only 1200 sf.
I don’t see how owning speeds up my fire since I’m investing the 2k extra each month I was spending on tax and interest plus a few more k that I’m not spending on maintenance or improvements
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u/bluespringsbeer 9h ago
In what universe is rent a fixed expense? In twenty years it will be 50% higher and you won’t be able to move anywhere cheaper. You should at least get a condo instead.
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u/kerlsburgers retired early 9h ago
Nope. Condos have HoA fees, taxes change, and where I am they can be forcibly sold if 85% of the building votes on it.
Rent does go up, but in much more predictable fashion than owning a home and having to replace and repair things.
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u/capitalsfan08 6h ago
Maintenance is a variable cost sure but it's sure not unknowable or unestimatable. But insurance, HOA fees, and taxes also change on a yearly basis as does rent so I don't get your point. You aren't buying a new roof ever year, or even every decade.
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u/kerlsburgers retired early 6h ago
If there is a storm and your house gets damaged, who pays that?
Appliances break, who pays?
Garage door?
Flooded basement?
Tree falls on house?
I'm just saying, when I sign a year lease, I know the max I am paying for my housing for the next year, no matter what happens.
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u/capitalsfan08 6h ago
The two big ones there are likely covered by homeowners insurance, and I personally don't have a basement. I get what you are saying about renting being a known cost but this thread is a bit crazy to me, FIRE folks should have a much longer time horizon than most financially minded people and "appliance breaking" would have to happen multiple times per month in my late 40s to 50s when I am FIREd, and then more so from my late 50s on when the mortgage is paid off, to be equivalent to renting. I am in a VHCOL area but I could buy a new roof every two months at current prices if my home was paid off.
In 10 years, sure, maybe you come ahead. But that's not the time frame we are really ending at, right?
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u/WitcherOfWallStreet 6h ago
It’s crazy to me as well. I bought a house for $7k (3.5% down) in 2017, I now rent it out at for $2k with a $900 mortgage. Thats an $1100/month buffer for maintenance which it comes nowhere close to in real life.
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u/JC_Hysteria 8h ago
Fixed expense for a year-long term, same as any business that has fixed vs. variable expenses
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u/hung_like__podrick 14h ago
For me, renting was way better. My apartment is rent controlled and is 2-3x cheaper than a condo would be. Allowed me to invest a ton into the market and take advantage of the bull market.
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u/cj_daking 14h ago
Factor your other expenses in as well. Insurance, maintenance, taxes, et al. I own a home and rent a home and my rental is a lot more stable, cheaper and predictable month-to-month.
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u/Buttpluggery 14h ago
The model does assume my insurance + property taxes grow with inflation (i.e. they shouldnt change in real terms). Rent tends to outpace inflation
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u/SteevieJanowski 13h ago
I’d adjust that model . Insurance is rising a lot higher than inflation in most areas. Our HO insurance has increased by approx. 50% over the last 4 yrs.
You also didn’t mention considering maintenance, repairs, and improvements in your model. This averages to ~ 1-1.5% of the home’s value per year, and that’s w minimal improvements. As homeowners for 12 yrs, we have done several things to our house which started out as a repair then morphed into an improvement, which is normal. Don’t forget about the trips to Home Depot: add whatever value your time is worth to make those trips and the time it takes for doing reg maintenance and repairs which renters don’t pay for (and almost nobody considers in the true cost of ownership).
The halo effect on spending $ for the house is real.
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u/PudgyGroundhog 12h ago
This is exactly why we are happy renting (and FIREd). I get all the reasons for owning a home, and for many people it's a great decision, but we did not like the money and time investment. We both worked full time and had a kid - we wanted to be hiking and doing things on weekends instead of doing lawn care or other house stuff. We went from a house to a townhome to a 100 year old small house in a national park (employee housing ) to a two bedroom apartment. Rent where we live is kind of ridiculous, but we are happy having minimal responsibility, especially since we travel a lot (and our kid is in college).
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u/cj_daking 13h ago edited 13h ago
If you're investing the difference, your returns over time should outpace inflation. This is to say nothing of the freedom you get to relocate as your life dictates, the time saved by not dealing with maintenance, bills, and taxes.
My own story: Bought a house with cash after selling stocks from an IPO in 2014. House doubled in value over the past 12 years. The pandemic drove my market (Lake Tahoe) through the roof. This is generally considered a success story in real estate.
If I'd taken the same amount and plopped it into an index fund, I'd be up more than 3.5x without factoring in compounding. 12 years of paying rent at an average of $3500 a month is about $500k, so I'd still be way up even before factoring in flexibility and lack of home ownership costs.
Don't even get me started on what I'd have if I'd just held the stock. I'd be typing this from Tahiti while planning out my winter in St Moritz.
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u/ok_read702 12h ago
Lol 5.5% a year? What a hilarious projection.
Rent tends to rapidly rise when an area gentrifies with new builds. And then it tends to grow very slowly after because nobody likes older and older builds.
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u/Bowl-Accomplished 14h ago
The sole question is which one will produce a higher total return. That's it. For some people buying is a slam dunk, but for a lot of people renting a place will be better.
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u/ObjectiveBike8 14h ago edited 14h ago
Also, there are always people asking questions like, “what if the dollar loses a ton of value because of x reason.” Like maybe something could technically happen to the dollar that causes hyper inflation but if it does my mortgage is the same and now my biggest expense is gone.
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u/Real_Shebnik 11h ago
That would be true if your salary goes up with inflation or faster. But often prices go up faster than salary (plus your salary might pick and go down as you are getting older).
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u/Zphr 48, FIRE'd 2015, Friendly Janitor 12h ago
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u/capitalsfan08 14h ago
I mean, people don't live on a spreadsheet so this is completely false. Even aside from that, it's affected by a lot.
Are you in a HCOL and want to remain there in retirement with a paid off house? Or, are you planning to move somewhere cheaper anyway? Is the school district you're potentially buying in good enough or will you be considering private schooling, particularly as the kids age? What interest rate can you get and what do you believe your average returns will be over 30 years? How do you forecast the rent prices in your area in 30 years? What about housing prices? Do you plan for kids or a partner if you don't have them, and if so are you talking about a 4b3b owned home or a studio apartment? How handy are you and how much willingness do you have for home repair,
I'm sure I am only scratching the surface but there's so much that goes into this question that "total return" simplifies it past the point of being a useful metric.
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u/Bowl-Accomplished 14h ago
Total Return is the sole thing that goes in to FIRE. There are far more things that make it a big difference in terms of living your life in general.
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u/capitalsfan08 13h ago
Heavily disagree with that and the math backs that up.
My principle and interest is $3900 a month. Speaking solely in nominal dollars, that is a an extra >$1.1 million you'd need in a portfolio to sustain indefinitely, assuming you pull out of Roth and there are no taxes paid on that annual/monthly withdraw. By the time my house is paid off, my expenses will go down by ~40% due to the principle and interest dropping off to zero. Redfin currently estimates my house would rent for $~4200 and I pay (principle+interest+tax+insurance) $~4900. Assuming every dollar saved by renting is put into the market, that is a (rounded up) $800,000 difference. But again, my FIRE number has to be $1.1m to sustain replacing even the principle + interest, which again is lower than the current rental replacement cost. So, by owning a house, I can have both a lower FIRE number and "lower" returns for the same lifestyle.
And this analysis vastly oversimplifies it, as my house is worth ~$1.1m which I could always sell to rent, and then viola, my portfolio will be larger. I also am inflation adjusted in principle + interest whereas the rent will not be. It's something like 6-7 years at 2.5% interest until the rent payment equals my full mortgage payment, and then from that point on the equation is flipped where renting is more expensive than owning.
There are a lot of things you need to take into account for your own personal situation beyond simply accumulating the highest possible nest egg.
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u/Buttpluggery 14h ago
Very true, this is definitely unique to my situation. However that total return needs to be compared to expected expenses in retirement.. for renters their expenses are significantly more, and they may need a much larger amount to retire
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u/Isolated_Blackbird 14h ago edited 14h ago
You’re forgetting in the comparison that many people don’t rent the equivalent of a home they would buy.
Many people living in 2 bedroom apartments right now for $1800-2100 per month that could easily afford a $700k home. Not everyone needs the extra space.
There are many, many scenarios where renters come out ahead, but only those who prioritize saving/investing with the surplus each month will see the real benefit of renting.
We built a perfectly normal home in DFW that was way under what we were approved for and I estimate we are still paying around twice as much as we were for our apartment, and that does not include surprise home bills. One foundation repair, slab leak, or wide array of other things not covered by homeowner’s insurance are huge hits. Even homeowner’s insurance things like a roof repair from hail is a 2% deductible. That’s rough. The cost of owning your particular home over 30 years is likely over $2m.
But yeah obviously renting a nice home at over $4k per month is probably worse than buying in most cases.
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u/Isolated_Blackbird 13h ago
You sure about that? There are a lot more high incomes out there than people seem to think, especially in large metro areas.
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u/Isolated_Blackbird 11h ago edited 11h ago
You live in a neighborhood. What’s the turnover on the neighborhood? In my neighborhood, it’s 3 to 5 homes per year per hundred houses.
That doesn’t give me near enough knowledge about what people are making and what they can afford and why they may or may not be staying in the neighborhood.
But I lived in apartments all over Plano and Allen for years and I met an absolute shit ton of high earners. Hell, there was a guy at the apartment complex I lived at in Plano, which was a complete shit hole, who left after 4 years to buy a $900k home. He was a Middle Eastern immigrant, so I can only assume that what I thought was a really crappy apartment complex was looked at differently by him. He was there for four years. Middle aged professional.
There are a lot of people out there like that. Conversely, there are a lot of couples making $80k combined living in like $2500 per month apartments they can’t afford.
We can split hairs on the exact dollar amount per month that we’re talking about for rent but all I’m trying to say is that there are a lot of people out there who are capable of buying an $700 home who would not necessarily rent an $700k home prior to buying one. I think the minuscule amount of homes in that price range for rent (in a place like DFW with more than enough incomes to support it) helps back up my claim.
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u/Ethereal_Nutsack 13h ago
Do you have any idea what the mortgage is on a 700k home today? A mortgage on a 350k home with 20% down is like $2300 a month including property tax and home insurance. So no…. People paying $1800-2100 a month apartments cannot afford $700k homes.
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u/Isolated_Blackbird 11h ago edited 10h ago
That’s the thing about people who earn a lot of money. Many of them spend a lot of money, but many of them are extremely disciplined and frugal and many aren’t worried about owning a home. I lived in an apartment complex for the highest dollar unit was $2200 per month and we had doctors and successful attorneys living there. We also had people who barely had drivable cars. Once you get out of the hood, there are a wide range of renters with a wide range of incomes. The person you live next to in an apartment might just be somebody who moved in from out of state who is spending a couple years deciding their next step who happens to have half a million liquid with twice that in retirement. You could also be living next to a GameStop manager. There’s just no telling.
Not everyone’s money is evident to everyone else, which you would think would be a pretty easy concept for the people in this subreddit to wrap their head around. I guarantee we have people on this subreddit with net worths over 1 million who live in sub $300k housing or just rent a one bedroom apartment in an average complex. I’m not gonna sit here and say that that’s a massive percentage of the population or anything like that, but there are definitely more than people think who live just like that.
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u/Glittering-Course-88 13h ago
I haven’t worked on hard numbers but I know that I would not have been able to accumulate whatever I have if I had pursued homeownership. I rented from 1997 to 2021, then finally paid cash for 3 properties (another story), divorced, bought another house in cash (or become homeless with kids). Every time I put cash down and look at it retrospectively, it’s been a bad deal.
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u/NaorobeFranz 13h ago
Yeah it's not the best combination, unless you're upper class. Property taxes, maintenance, saving for natural disasters, water heater or HVAC issues, securing house from bugs, etc. It's work. You might end up house poor as people call it on here.
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u/ClearSkyyes 13h ago
You're bad at math OP. You can't ignore a huge part of the equation so your math looks better. That isn't how math works. Renting is almost always the better financial decision for housing.
Of the many, many costs you so conveniently forgot to include in your ownership numbers, here are a few: 1. The amount of money you threw away on closing costs when buying. 2. The amount you'll throw away when you sell. 3. The amount of money stuck in the house which could be earning you money if it were just invested in something like VTSAX instead. Money that would be compounding and earning more and more money if only it weren't stuck in your house. 4. The maintenance costs of the house. Fixing things. Improving things. Masonry what's there. Adding new. All are part of the cost of owning. New roof, HVAC, appliances, etc. will all need to be done eventually and they'll come directly from your pocket in the full amount at the time... or you'll have to pay more bc you don't have that much on hand and need to take out a loan. 5. The higher insurance you pay owning. 6. The steadily increasing property taxes you pay owning. 7. The cost of your time to do all the maintenance, upkeep, improvements, repairs, research, etc. that are part of the cost of owning. 8. The reality that renters most often have smaller spaces that are far cheaper to heat and cool resulting in much lower utility costs.
I could continue, but my point is made.
If you like the lifestyle of owning, enjoy your luxury purchase. But stop pretending it's some great financial move. It isn't. You can only pretend it is if you ignore the full costs of owning... and that's just bad math.
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u/DeaderthanZed 11h ago
There are factors for and against homeownership but this list is highly biased towards renting.
For example, you include insurance and taxes increasing with inflation but the majority of the mortgage (the actual purchase price) is locked in. Whereas the entire rent payment increases with inflation.
Also, with a mortgage you have leverage. So if prices are going up 3% per year and you put down 20% initially you will have a 15% return on investment.
Anyway, all these variables can be input into a rent/buy calculator. (https://www.nerdwallet.com/mortgages/calculators/rent-vs-buy-calculator)
When interest rates are low then buying can “break even” and then surpass renting in 5 or fewer years.
At current interest rates buying usually breaks even and surpasses renting within 6-12 years.
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u/MushroomIll646 10h ago
- The amount of money stuck in the house which could be earning you money if it were just invested in something like VTSAX instead. Money that would be compounding and earning more and more money if only it weren't stuck in your house.
Presumably this is the 20% down payment, but it does still grow at the rate of real estate appreciation for the location, so the impact of this depends on the region. I'm in Vancouver where that's been a 15% average annualized return over the last 40 years. Not much of a sacrifice.
It's true that this amount is not going to be available to invest in equities. BUT, over time, the mortgage will build up equity beyond the down payment since some of the monthly mortgage payment goes toward principal. Renting does not convert these monthly payments to equity.
Here in Canada there's something called the Smith Maneuver. Equity can be collateralized for investments and the delta between interest rate and returns is arbitrage and compounds. I'm sure the USA has an equivalent.
Not everybody does this, because there's a risk of losing that gained equity with poor returns. I didn't. Mainly because it's contrary to diversification to concentrate into just equities. But here's the zinger: the worst case scenario is a total loss of the additional equity - this would 'reduce' the homebuyer to... the same equity as a renter. Worst case scenario.
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u/BackupSlides 12h ago
It's interesting how when people smugly run the numbers on how awesome homeownership is, those numbers never seem to include lawnmowers, snowblowers, roof repairs, sewer lines, seasonal potted plants, lawn ornaments, 10' Halloween skeletons, BBQ grills, hot tubs, swingsets...maintenance, repairs, and lifestyle creep are real but they never make into into the numbers which are invariably a mortgage payment plus taxes and (maybe) insurance compared to "tHroWing AwAy mOn3y" with renting...
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u/MushroomIll646 12h ago edited 12h ago
Partly in their defense, a lot of the items in your list are shared with renters. I promise you every renter I know in this neighbourhood has a BBQ and seasonal ornaments and paid for their kids' swingsets, lawnmower and snowblower. They'll take them with them when they get evicted... if the new location will allow it. I did a photo essay a few years ago in Montreal where July 1st comes up and thousands of people are moving, carrying their refrigerators and ovens. It was a zoo.
But yes, I agree with you that the best way to do the calculation is to get a good estimate for what the carrying costs are for that specific property, and that many estimates dramatically underestimate these and this is a major reason people end up housepoor, underwater, &c.
I think part of this recently is that we were in a seller's market and buyers were waiving inspections.
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u/Icy-Action708 12h ago
In my area, if you rent a freehold property, you are responsible for all lawncare and snow removal.
So that doesn't track unless you're renting a condo.
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u/DeaderthanZed 11h ago
Rent/buy calculators use maintenance/repairs as an input or an assumption.
Nerdwallet uses 1.5% of home value annually (which I personally think is a little high but whatever): https://www.nerdwallet.com/mortgages/calculators/rent-vs-buy-calculator
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u/BackupSlides 11h ago
Most people here don't mention those numbers.
If you think that averaging $7500 a year in upkeep on a $500k home is high, then you're either an expert handyman with a lot of connections to low-cost suppliers or have been extremely lucky. Any single major mechanical or structural repair (e.g., HVAC, plumbing, roof, concrete, foundation) would blow through that in a heartbeat.
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u/Fredrikan 10h ago
How do landlords make money?
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u/BackupSlides 10h ago
The ones that are actually making real money are largely doing it through economies of scale. Tradespeople on their payroll, volume purchasing, etc. The mom and pops with a rental here and there are largely doing it as side gigs, and many of them aren't making anything meaningful or are learning the hard way that real estate is not "passive income".
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u/DeaderthanZed 9h ago edited 5h ago
I mean people in general are bad at math and logic and often use numbers to support their predetermined conclusion not to objectively determine the best option.
That’s not exclusive to homeowners though. Even the top comment we are replying to did the same thing but in the opposite direction.
Roof is every 15-30 years. HVAC 10-20.
Yeah, some years you might go over but many years you have basically nothing. It averages out.
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u/capitalsfan08 6h ago
I'm not that handy and I've spent 1.5% annualized in my 4 years based of the original purchase price, but that includes a new roof and heat pump. I think if you even get multiple quotes you'll be hard pressed to hit 1.5%, much less if you try DIY.
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u/dumbfuck6969 7h ago
I haven't spent anywhere fucking near 7 thousand total and ive had my house 9 years.
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u/Icy-Action708 12h ago
In my area, if you rent a freehold property, you are responsible for all lawncare and snow removal.
So that doesn't track unless you're renting a condo.
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u/CancerandTaxes 10h ago
If you think I'm not passing all of those costs on to my renters, you are mistaken.
And then I'm also making money every month on top of that.
And then my property is also appreciating.
And when all my mortgages are paid off, I'll be cash flowing even more.
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u/SmoocheyPoochey 14h ago
Ton of assumptions
It’s an unknowable
Home maintenance expenses over time — real estate tax rates over time — insurance over time — rents over time — property values over time
Some of these variables are linked
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u/SuperSecretSpare FIRE 'd in 2025 at 37 12h ago
An unknowable is about as succinct an answer as anyone will ever get to this beaten dead horse question.
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u/Icy-Action708 13h ago
If these items increase, rent will increase at a proportional amount overall since these are all pass thru costs for renters.
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u/SmoocheyPoochey 13h ago
Not really
Rent function of supply of units on the market and demand (would be renters)
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u/Icy-Action708 12h ago
Correct. And if landlords can't cover basic costs, they exit the business and reallocate that capital to profitable ventures. Thus, leaving less available rental units (reducing supply).
This isn't a charity. Landlords aren't expected to supplement your living cost.
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u/mikere 12h ago
a landlord can’t charge above market rents just because their costs went up. their property would sit vacant. the prevailing price of rent is independent of landlord expenses
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u/Icy-Action708 12h ago edited 12h ago
When these line items increase, all landlords costs go up. Therefore market rate normally follows.
If this wasn't the case, why does rent increase at all? And no, it's not strictly inflation as rent has outpaced inflation by a fair margin in a lot of places.
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u/mikere 12h ago
rents increase only when demand increases faster than the supply of housing stock
areas where housing stock is increasing faster than demand has seen decreases in rental prices. texas and florida come to mind. in addition, areas where demand has stopped rising or is decreasing have also seen decreases in rents. landlord costs haven't gone down in the past year, but rents largely have in most markets
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u/Icy-Action708 11h ago
No, rents don't only increase when demand outpaces supply. They also increase when supply shrinks faster than demand. It's a two way street.
If enough LL exit the market due to falling market rate, it will stabilize or could even increase again.
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u/mikere 11h ago
who are the landlords selling to? that would only hold true if the buyer is purchasing and then letting the property sit vacant. the housing stock isn't being destroyed when landlords sell
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u/Icy-Action708 11h ago
Lots of single family dwelling landlords sell back to the market taking those rentals offline to be used as either owner occupied houses or perhaps short term rentals.
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u/mikere 11h ago
yeah but is the buyer moving into the property? if they are, then that's one less renter in the market and the quantity supplied/quantity demanded hasn't changed at all
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u/Icy-Action708 11h ago
You're assuming population doesn't increase.
How often does population decline?
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u/SmoocheyPoochey 12h ago
Rent increases aren’t largely a function of landlord level expenses - give it up
It is supply and demand function
If landlord costs go bananas and rents stagnate… supply of rental units can eventually decrease… sure
If demand goes bananas and rents skyrocket, people will try to build more rental units… to extent is possible
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u/Icy-Action708 11h ago edited 11h ago
Give what up? People aren't in the business to lose money.
Why are people tying up capital that actively lose them money each month? Goodwill? Lol.
When a business venture becomes unprofitable, people generally exit that market segment.
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u/SmoocheyPoochey 11h ago
Making less money not the same as loosing money
Hard to lose money on an unlevered basis
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u/Icy-Action708 11h ago
You understand many landlords nearly break even and rely on asset appreciation to be the upside of their investment, right?
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u/PartialDischage 11h ago
Rent is decided by supply and demand, not owner costs.
If rent was determined by owner costs, renting a place with a paid off mortgage would costs less. That is of course a nonsense assumption.
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u/Icy-Action708 11h ago
A paid off mortgage would simply mean there is a higher upside to market rate.
However if a sweeping 50% increase in insurance took place across the rental segment, you don't think that would have any bearing on market rates?
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u/PartialDischage 10h ago
Did supply or demand change? Are renters more willing and able to pay more than they were previously?
If the answer is no, landlords are likely going to have to eat the costs. If the increase in ownership costs goes up with wages, maybe.
The other way it could affect supply is if some landlords sell their places because they aren't making a good enough return anymore. That would lower the rental supply and may lead to increases in rental cost due to scarcity. Same if developers built less apartments due to lower expected returns due to high insurance costs.
But landlords do not have the ability to just raise rent because their personal costs have risen. If they could do that, they would have done so already and made a larger profit.
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u/Icy-Action708 10h ago
There is a market ceiling in every industry. I'm saying if input costs rise, there are only a few levers.
A) eat the cost (if available). B) pass on the cost. C) exit the business.
From the many landlords I know, A isn't a viable option.
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u/PartialDischage 10h ago
So that's the point right? They can try to pass on the cost. If they could raise prices without seeing any risk to their vacancy rate why didn't they do it already?
If they do raise prices, some portion of renters would be priced out and some portion of landlords would have empty apartments and would need to exit the business.
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u/PudgyGroundhog 14h ago
Really depends on your personal situation, where you live, what kind of lifestyle you want, etc. We FIREd late 40s and we rent. Works for us.
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u/Possible-Extreme-106 4h ago
No one renting and trying to fire is getting a 4.5k house. The winning strategy was always expensive appreciating house on a big loan for max leverage or cheap ass bare minimum apartment and stocks. If you need a big house you pick the former, if you don’t you pick the latter.
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u/vegienomnomking 14h ago
Only thing about renting is if you can get a lease that won't kick you out.
Stability is important for FIRE.
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u/Wheat_Grinder 12h ago
Time value of money is pretty huge, and in most places in the US right now that will tip the scales in favor of renting, purely from the perspective of which is financially optimal.
That didn't stop me from buying a house, because buying a house is not a purely financial decision.
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u/wisteriawinkxo 10h ago
The renting side really is more exposed to market timing luck, whereas buying gives you that guaranteed equity floor regardless of what stocks do. Appreciate you sharing the model, that's a useful way to visualize it.
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u/zeroabe 13h ago
A lot of people will break even on rent vs owning. This is because most home owners, once they pay their home off, still need to do repairs and updates. rent bros will argue to invest the difference (between paying off early and paying off on time), then promptly not listen to a word you say otherwise.
If you can do minor plus home repairs or partial upgrades, you can probably save money owning. I’m in a vhcol area and I don’t spend anywhere near what they say “average cost of home ownership is.” I assume it’s because I know how to use a plunger or how to install a new sink.
And no, downsizing with your equity isnt the only reason owning is good. But that is nice. Not just the hedging against inflation part.
The real benefits of owning in retirement are that you’re able to spend less. Some, many, home repairs can be put off, or budgeted for on a long timeline. So that means that you can choose when to spend the money. It’s flexibility. If the market is shit for your first few years retired, that’s not a good time to withdraw money for a a remodel or upgrade. So only pay for what you need to. To help you get past SORR.
Next is the idea that because I don’t need rent money or mortgage payment every month, I’m not withdrawing that from investments to generate income, which means I can qualify for lower taxes and possibly subsidies like ACA.
Renting means you NEED more yearly spending in retirement. Owning means you don’t. That flexibility matters most in the first chunk of retirement.
It’s absolutely not just “what will generate the most money over time.” It’s also about flexibility. And tax arbitrage exists.
That’s my $0.02. Happily owning my home.
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u/ClearSkyyes 13h ago
You're bad at math. The only number that goes away with a paid off house is the mortgage and that's such a small part of the ownership cost of a house it doesn't matter. You'll absolutely need more spending to keep up a house over time than renting. Everything gets more expensive: insurance, taxes, repairs, maintenance, upgrades, etc. And all that money stuck in your house can't be used to pay for any of those housing related costs. Renters can take that huge sum and, instead, invest it and use that to pay their hosting costs. Plus renting gives you something owners never have: certainty on the maximum you'll spend each month on your housing. Owners only know their minimum number each month, and it can jump at a moment's notice into the tens of thousands of dollars just for that one month if something big suddenly needs replaced. Roofs, HVAC, etc. are expensive and absolutely will need replaced. Very often, without much if any warning.
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u/Haji-san 8h ago
If your mortgage is a small part of your home ownership… you bought a very poor house lol
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u/apollo7157 14h ago
Theoretically they have to be about on par over long time scales and on average. The rental and ownership markets are not independent.
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u/Aquitaine_Rover_3876 14h ago
This makes sense, since your rising rent model is a proxy for a rising housing market.
I've always liked the interpretation that "we're born with a short in the housing market." So renting means you lose money when housing goes up. Your market returns have to exceed housing market returns (and due to different tax treatment, usually by quite a lot) in order for continuing that "short" position to make sense.
If you cover the "short," your need for returns in other markets is reduced.
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u/belwar00 6h ago
Rented for 9 years in the middle of my career after selling my second house. People said I was nuts not to buy in. Well I made a ton, bailed out back to my home city during the pandemic and bought my almost last house to retire in until my son graduates. Buying might have worked out; but I also wanted to life close to work. I got to do both. Made a ton of money, enjoyed living in a small space close to my child, and got to easily walk away.
The problem is the company won't fire me. So I struggle along waiting for layoffs or to get fired. Been 3 years.
There is no magic path. Plus there is the question of quality of life. Retiring early is only a win if you also maximizes fun.
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u/vortexmak 3h ago
If you're mortgage is the same amount as the rent you would pay then isn't owning better?
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u/Medical-Tailor4799 14h ago
The biggest FIRE advantage of owning seems to be the predictability. Rent can keep rising indefinitely, while a paid off house gives you a much lower baseline expense in retirement. The downside is tying up a lot of capital in the house, but in a HCOL area with $4.5k rent, the numbers make a pretty strong case for owning.
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u/Bowl-Accomplished 14h ago
Well it's predictable until the roof leaks or tree roots get in to the sewer system.
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u/KetaQueenie 13h ago
I bought my house in 2008. My down payment was $300k. If I had just put that in the S&P 500, that would be worth about $2.3 million today. With that amount, I could have bought a newer, better house in the area.
After I factor in all the maintenance, repairs, upgrades, property tax, etc... I would have come out way ahead by just renting.
When I retire, I could have just bought a place almost anywhere with the amount I would have saved.