Buy vs. Rent: Asking the Question in Mid-Life

in Investing by

One day late last autumn I awoke to find myself skidding uncomfortably close to a number that begins with a 5. Wait— how did that happen? I’m— I’m middle-aged! Heck, going by current US life expectancy figures, I’m already several miles over the hill (81 is the average for women as of 2014). Existential dismay notwithstanding, I’m in pretty good shape for a geezer. I can still race a half-marathon with ease, and don’t yet need reading glasses. Financially, I’ve done a creditable job of saving, investing, and retirement planning. There’s just one problem: I have yet to buy a home for myself.

This is not for lack of financial fortitude. The fact is I was blessed (cursed?) to be born in one of the most desirable places to live on the planet, and thus the most expensive. Real estate prices here are off the charts. Almost literally. Take a look:



Source: Paragon

As a native of the San Francisco peninsula who still lives here, I’m a pretty rare beast; an awful lot of my contemporaries have been driven out by the ridiculous housing prices. I’m determined to stay if I possibly can, but it’s a stiff challenge on a single income. I have a vision of myself in this endeavor looking something like this:

donkey As I have saved and saved for that down payment, diligently, faithfully, year after year, home prices have continued to grow faster than my savings; I can’t keep up. The tantalizing prospect of home ownership dangles eternally before me— just out of reach!

Grab the Carrot! Or not…

But why, you may ask, did I not buy during that lovely little dip in the chart above during the recent recession? Good question. I’ve been in a position to chase that blasted carrot for a number of years because I’ve been hunkered down in the old family homestead with Mom. This works really well for both of us; while I’m furiously squirreling away cash like a good donkey, Mom reaps the benefits of having someone on hand to deal with the cable guy, take her to doctor appointments, and argue with her over the merits of the Giants’ third baseman. She’s happy, I’m happy, and my siblings are all happy knowing I’m looking after Mom.

During the recession I considered making the ultimate lunge for the carrot. I thought I could buy something and rent it out until such time as I was ready to occupy. My financial advisor, however, counseled against this. “You wouldn’t be getting any utility out of your money,” he reasoned. ”You couldn’t charge enough rent to cover the mortgage. Leave that down payment working for you in the market until you’re actually ready to move.” This was an opportunity cost I had never considered before. His point was a good one. And keeping that chunk of almost-a-down-payment in the market has indeed paid off; it’s done well during the economic recovery. But as I’ve watched housing prices skyrocket again in recent months, I wonder. Did I miss my chance, standing on the sidelines, only to see the window of opportunity slam shut?

Sink (it in a house) or Swim (in a pool of liquidity)?

Saving takes time. As time has passed and the birthdays have piled up along with the cash, a question that once seemed nearly blasphemous creeps into my mind: On the sad future day when my current living arrangement ends, should I actually consider becoming a renter rather than buying? The Rent vs. Buy dilemma is an old one: Drop a chunk of change on a down payment and tie yourself to a mortgage for 30 years, or pour cash down the voracious bottomless pit of monthly rental payments indefinitely?

The “right” choice is different for everyone. When you’re young and have little cash saved, renting is the obvious choice. It’s less obvious later in life. Middle-aged folks with a substantial amount of cash to invest have to ask: Is it wiser to freeze it into a fixed asset (a house), or continue to have it work for you making money in the financial markets while you feed the rent monster?

Professor Moshe Milevsky of Toronto’s York University makes a fascinating argument in favor of buying later in life in his book, Your Money Milestones: A Guide to Making the 9 Most Important Financial Decisions of Your Life: “When you are young the vast majority of your true wealth is locked up in human capital, which is illiquid, nondiversified, and definitely nontradable. It therefore makes little sense to invest yet another substantial amount of total wealth in yet another illiquid and nondiversifiable item like a house…. In sum, a strong argument can be made…that renting is the optimal choice when you are young. “However, when you are older (say 50 or 60) and you have unlocked a large portion of your illiquid and nontradable human capital and converted it into financial capital, you can afford to “freeze” some financial capital and lock into a home purchase. At that stage, not only do you have more wealth in total, but also your balance sheet (and especially your human capital) is likely not as sensitive to the state of the economy and its disruptive impact on wages. So, [the completely logical] Mr. Spock buys his first house–after 25 years of renting–at the age of 50.”

As I approach 50 myself, this is music to my donkey ears. I want to believe Professor Milevsky is right. But in an over-the-top market like the Bay Area, is there an argument to be made for renting your way through the second half of life?

Note that rents here aren’t a whole lot more palatable than home prices:



They trend rather closely with monthly house payments that include mortgage, taxes, and insurance. So how does one choose?

The Older First-Time Home Buyer: Do the Math

Younger folks are more likely to regard a first-home purchase as a stepping stone to moving up the real estate chain, while older first-time buyers may lean more toward settling down and staying put. Stability of housing costs becomes far more important than appreciation as we approach retirement (and the accompanying reduction in income). With this in mind, we’ll ignore the question of home price appreciation for this exercise. We want to focus on the overall value to be obtained by either renting or buying in the second half of life.

For the record, however, note that the Wall Street Journal recently reported that compound annual return in the three decades through 2013 on single-family homes was a mere 3.6%. In the same period, the S&P 500 returned 11.1%. NOTE: The variables in any simulation such as the following are infinite, and holes certainly may be poked here; please regard this analysis as a high-level exercise that provides some useful insights.

Buy at 50…

Let’s assume that at age 50, Jane Buyer closes on an adorable 2-bedroom, 1-bath cottage in a good location for $625,000. She’s fortunate to be able to put down a substantial 35% down payment. Now let’s crunch some numbers. 30yearWhat are Jane’s monthly costs? Taking into account tax deductions for loan interest and property taxes: monthlyfor30…for the first year, anyway. Inflation will gradually increase both property taxes and homeowner’s insurance over time. We’ll assume a 2% annual increase for both of these. Taking all of the above factors into consideration, 30 years of diligent payments will add up to a total of $926,012. Add that to her initial down payment, and 80-year-old Jane will have paid a total of $1,144,762 for her cottage. Upon paying off her mortgage, her only remaining recurring costs will be her property taxes and homeowner’s insurance, which by year 30 will total something in the neighborhood of $14,000 per year (or $1,167 per month).

…Or Become a Lifelong Renter

But what if Jane opts not to purchase, and instead commits to being a renter for life? Let’s say that she finds a 2-bedroom cottage for rent at $2,000 per month. That’s certainly less than a $2,280 house payment. But rents will continue to rise over time; if we apply an annual rent increase of 3%, by the time Jane is 60 her monthly rent will have jumped to nearly $2,700. In 30 years, inflation could potentially increase Jane Renter’s rent to $5,000 per month, and her total cost of rent over 30 years would come to $1,141,810. So $1,144,762 to buy. Or $1,141,810 to rent.

Jane Renter squeaks ahead in this scenario by a mere $2,952. Heck, that’s practically a draw, right? Not so fast. We forgot something: the down payment that Jane Renter never plowed into a home. Jane Renter would invest her down payment ($218,750) in a well-diversified portfolio of assets. Assuming a conservative 4.5% annual return, Jane could potentially realize an income of $8,000 per year on this (after taxes). Over 30 years, that would amount to a return of $240,000. (If Jane left the amount to compound for the full 30 years with no withdrawals, she’d end up with $894,683… but how much fun could she have with that in her 80s?)

Taking this investment into consideration, at age 80 Renter Jane comes out ahead by at least $242,952. Jane Buyer could potentially pull out a win in the end, but only if she lives to age 86, when Jane Renter’s advantage is finally devoured by her ever-increasing rent. But 86? Remember, the average female life expectancy in the US is 81. 30yearcumulative Maybe there’s a way to boost Jane Buyer’s chances; what if we shorten the term of her loan?

Suck It Up: The 15-Year Mortgage

Cutting the loan term in half offers several benefits: a lower interest rate, significant reduction of total interest paid, and best of all, the opportunity to hold a mortgage-burning party when Jane is 65 rather than 80. Of course there’s one major drawback: significantly larger monthly payments. Let’s say Jane Buyer was able to swing a 15-year loan at 3.36%. Her monthly costs would look like this:  15year That’s $918 more per month than the 30-year mortgage scenario, and nearly $1,200 more than rent at the start. But a 15-year mortgage saves Jane $318,159 on the purchase over the 30-year mortgage. And after the loan is paid off, Jane’s monthly expenses are drastically reduced for her retirement years. But Jane Renter will still come out ahead… at least until age 82:  15yearcumulative It’s not looking good for Jane Buyer. It gets still bleaker when, to be quite thorough, we toss in one last cost: Maintenance. Jane Buyer can count on spending at least $100,000 over 30 years to keep her little cottage adorable (and livable). That pretty well settles the question: Jane Renter wins. Hee haw.

Live Long and Prosper!

As with any financial forecasting there’s a lot of crystal-ball-gazing here, and it would be possible to manipulate these scenarios in any number of alternate ways. However, it’s hard to ignore the big lean of the numbers in favor of renting in an expensive market. The Break Even point for buying (even before considering maintenance) comes so late in life that it’s practically meaningless. What’s very clear is that time is a friend to the young. Home ownership pays the greatest dividends to those who live longest after paying off their mortgages, so mid-life buyers begin the race with a significant handicap.

The numbers may be more friendly in less expensive areas, but in pricey locales like the Bay Area they are downright hostile. So should the Donkey here untie the stick and abandon her carrot? I’m not sure. There are psychological and emotional benefits to home ownership that potentially outweigh financial considerations. But an analysis such as this certainly removes any blinders a donkey might be wearing. And donkeys can live a really long time. Join Personal Capital For Free To Better Manage Your Finances

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Tricia Richter

Tricia Richter

Tricia Richter was born and raised in Silicon Valley. She graduated from one of the Bay Area’s two top universities, then went on to work for the other (her loyalties are utterly undivided when Big Game rolls around each fall, however). Having lived through the DotCom boom and bust, as well as the more recent financial crisis, Tricia has become an astute and dedicated student of all things personal finance and a firm believer in the slow-but-steady approach to building wealth.


  1. Financial Samurai

    Such a fantastic post Tricia, I was laughing out loud!

    You post a dilemma that I don’t think many people really think about until the hit middle age.

    Most homeowners I know of pay their mortgage off far earlier than 30 years. I like how you did the exercise of comparing rent and ownership. So many variables and unknowns.

    Who woulda thought the real estate market would go ballistic again so soon after the financial crisis?

    I say if you find your forever home you love, and have done the math, then go for it. Up and to the right is our friend over the long term.

    • Carrie

      The one aspect that is missing in the buyer scenario is that often people in markets such as SF are able to sell their house and cash in on the equity – sometimes netting several hundred thousand dollars (which also has tax implications). This type of cash-out may not be very useful when you are 82, but if you do it t age 65 and then go into a rental, you might come out further ahead. The other thing that Jane Buyer did was sink 35% into a down payment. My financial advisor always says cash is king, so some may prefer to hold onto their cash and invest it. It would be interesting to see these scenarios with lower down payments and a split between buying for some years and then renting later in life (in a retirement community where costs are lower). Great article!

      • Tricia

        Good call on the compromise approach, Carrie— sell halfway through to pull out the equity and then rent in a retirement community. I wonder how I’ll feel about home maintenance when I’m pushing 70… I’m hoping that I’ll be pretty spry, given my (extremely) active lifestyle and family history of longevity, but you never know. I may still be happy to push a lawnmower and vacuum up dog hair (the dog is a must… and a big part of the reason why ownership continues to hold great appeal).

        I agree that running the numbers with a lot of different variables could be really interesting. Hard to cram multiple scenarios into a blog post, though— tough reading! But the “if…then..”‘s are pretty intriguing. And the comments here are really insightful as well. In fact, I’m delighted to see so many folks poking holes here. Good stuff!

  2. Alex Valdes

    I like the post but did you forget the asset? I didn’t see it in your calculus. It seems you are missing the fact that the buyer, at age 80, has an asset that she can sell (or borrow against). I believe this puts the buyer ahead.

    • Tricia Richter

      Hi Alex—

      Here’s the thing: Yes, our friend Jane will indeed own the asset once the mortgage is paid off. But she still needs a place to live; selling puts her right back into the position of having to choose whether to buy or rent in a future market that has become even more expensive.

      This, again, is where time is not on Jane’s side. A younger buyer has more of an opportunity to take advantage of price appreciation and “trade up”. The older buyer has fewer precious years to build up equity in the home in order for price appreciation to benefit her.

      Remember that the WSJ noted that compound annual return on single-family homes was a mere 3.6%. At that rate, in the 15-year scenario Jane’s home would be worth $1.06 million when she pays off the mortgage. That would indeed put another $236k in Jane Buyer’s “plus” column, but that still leaves Jane Renter ahead by $264k at that point. And, that’s only in the event Jane Buyer actually sells her asset (which will also involve further costs, and forces her to find other housing).

      I explicitly set aside price appreciation for this analysis largely because it’s less of a benefit for older buyers. Plus, even if the buyer does end up selling in order to reap the profits, the costs to establish a new living situation quickly eat up that profit. It’s likely that the Bay Area’s price appreciation will exceed the 3.6% average, but even in that case, selling leaves Jane having to deal with that more expensive market.

      Thanks for asking the question, it’s a very valid one. And who knows, an enormous housing price spike at just the right time could very well put Jane Buyer way out in front! By the same token, however, there’s always the possibility of a crash….


      • Financial Samurai


        Although annual apprise is a mere 3.6%, that’s 18% per year return on a 20% downpayment. I’ll take that any day + having the asset to pass down when I’m dead.

        The ability to make it easier for someone or the next generation in terms of living costs is a great blessing. I’m thankful I could go back to Hawaii and live for free in a house my grandfather purchased 60 years ago or so. Just knowing this gives me peace of mind to take more risks.


        • Tricia

          Hmmm. Interesting angle, Sam— I never thought of it that way before! My question would be, though, how much of that 18% increase would get eaten up by 12 months of mortgage/tax/insurance payments, plus the costs to sell in order to actually realize a profit?

          • Financial Samurai

            Mortgage rates are 2.75%-4% now. Add on 1% for maintenance and another 1% for insurance and you are at 4.75% to 6% for a net increase of 12% a year. Not bad if that is indeed the return!

      • Chris

        Tricia, this is a nice post, since we rarely seriously consider renting as a better financial move. I want to add on to your comment about the asset value. If the buyer sold her home (in the example $1.06 million at the end of 15 years), she wouldn’t just get back the appreciation, but the entire equity she has built: in this case $1.06 million after 15 years, minus realtor fees and capital gains taxes, etc. She would be in position of having to rent again, but she would have ~$1 million in capital to use and/or invest. So instead of adding $236K to the buyers plus column, it would add $1 million. She would have to find other housing, but the renter will likely have to find other housing at various times. Alternatively, if she just wants liquidity, the buyer could borrow against the house and have a similar payment as the renter again but with a large amount of cash from the refinance.

        • Tricia

          When I noted that selling would put the buyer ahead by $236k, that took into consideration all of the expenses paid out over the years in order to reach the point of completely owning the home. Yes, selling would put a lump sum of ~$1m in Jane’s pocket, but a large portion of that amounts to “getting back” money she had already earned and subsequently paid toward owning her home. Thus, you can’t consider it all profit.

          In other words, you can’t add $1m to the buyer’s “plus” column, because that column is net expenses, and is intended as a comparison with Jane Renter’s “plus” column (also net expenses).

          It’s fascinating how many different ways you can look at this though, isn’t it? It sort of is confirming my belief that, if I can just make the numbers work *well enough*, I’ll be ok to go ahead and buy (despite what the numbers seem to say about renters coming out ahead in this market).

      • Keith Burkhardt

        Your scenario is pretty static, there are many variations to consider. You assume that after buying a house the buyer is broke, income and saving stops. Buy when you can afford to and what you can afford. I put 20% down, which was 15% of my total cash. I now have a home with a fixed payment, my investment portfolio is up 25% this year, house is up 20% and I continue to save money (and invest), I just turned 50.

    • Anonymous

      I agree w Alex. Plus the tax deductions from the mortgage interest. On the downside, there was no mention of maintenance for new roof, Hvac, etc which
      Would add up to a large number over 30 years.

      • Financial Samurai

        I don’t think it is THAT bad, maintenance. A roof is every 15-20+ years. Same with water heater and stuff.

  3. Untemplater

    Bay Area real estate is nuts. I can understand your dilemna that is hard for a lot of people to understand who haven’t seen how crazy the market is out here. Rents aren’t cheap either and finding a decent apartment is not an easy task. There are a lot of new condos beingg built throughout the downtown to Hayes region, so at least they are increasing supply to meet demand. But it’s hard to know if the pricing will be reasonable or not. Nothing is cheap in SF!

    • Nila Ridings

      I enjoyed this article but Tricia Richter left out a major factor that anybody thinking of buying or renting a property in this day in age should educate themselves about BEFORE they buy or rent.


      Over 60 MILLION Americans now live in one of these insane places. There are over 350,000 of them existing on American soil.

      I’ve learned the hard way and I will share the basic details with you here. I will also give your great resources for learning more. I have studied HOAs extensively since getting caught in this nightmare in 2005. There is far more than meets the eye when it comes to HOAs.

      First off….when you sign on the dotted line to purchase you are signing away your US Constitutional Rights, you are becoming business partners with every one of your new neighbors in a non-profit corporation, and you are making a personal guarantee on any loans, lawsuits, settlements, embezzlements, liabilities, construction defects and disaster rebuilds for that HOA or COA. How does this happen? The board which is comprised of other homeowners who volunteer to be on the board and make all decisions on behalf of the HOA have a right to assess you for money for anything they deem necessary. My experience has been that board members are ignorant, arrogant, unskilled, power-hungry, and bullies. If you dare disagree or you expose them (as I have done) you will become a target. And they have all the money to fight you in court and they also have the power of their HOA insurance company to fight you in court. The deck is immediately stacked against the homeowners. The stress of dealing with these ignorant bullies is beyond words and it does have negative affects on your health. (internet search for Dr Gary Solomon HOA Syndrome)

      I paid cash for my townhouse at age 51. The maintenance was not done, the siding rotted to the point the electric meters fell off the house, the gutters were not cleaned and caused the basement wall to crack causing flooding that destroyed the finished basement, and I had to spend the money to completely repaid and replay all this damage. On top of that I had a lawsuit to deal with because I refused to pay dues of over $200 per month for no services being rendered as per the contract.

      The HOA had the same president for over 26 years. Investigations revealed no audits had been done for seven years (required annually by the by-laws) and TEN MILLION DOLLARS was unaccounted for…and still is to this day seven six years later. On top of that there was $500K in unpaid bills. There were many other problems but in the middle of the investigation and lawsuit to try and get to the bottom of what was going on and have access to the financial records the board president suddenly died. He had just purchased two more homes in California where he was running for the board out there.

      The results we live with now are property depreciation by 45%. The HOA board took out a ONE MILLION DOLLAR loan and we have over 25% rentals and countless foreclosures. I have spent my retirement savings repairing this townhouse and paying legal bills. If I sell tomorrow I will lose $200K and all homeowners are sitting here with the risks of assessments to pay off the million dollar loan and anything else the HOA board decides they want money for. In addition, the HOA has had their insurance canceled twice in three years and that adds additional risks to the homeowners.

      Dues…whether paid monthly or yearly it is money you will never see again. In the case of the HOA hiring the vendors you have no say in who they hire, when or if the work is done, or the quality of the work. That means if there is a fire and it burns your condo building down you could be paying a condo payment, condo dues, and for another place to live during the rebuild period. If the board decides to hire Uncle Billy Bob with a shiny new hammer to rebuild your place you are at their mercy. If it’s done and things are not working correctly, leaking or just plain poorly constructed you are at their mercy. If you scream and squeal….you will become their target. Fines…depending on the CC&Rs you can be fined for things like the wrong color of window treatments, parking on your driveway, leaving your trash can out for an hour too long, a dog that weighs a pound over the limit, a child that rides a skateboard, an cooking odor that offends a neighbor, leaving your garage door open too long, or flying the American flag…this is a very short list of what you can be fined for and if you don’t pay the fines you have only one option….hire an attorney and try to fight the battle. Keeping in mind the goal of the HOA or COA is to bankrupt you. In the end, they can and will foreclose and take your property.

      Embezzlement is massive across the country in HOAs. There is little to no oversight over HOAs. Very few laws are in place and those that are give the HOA the control. California has the Davis-Stirling Act and it hasn’t proven to help the homeowners but certainly gives massive rights to the HOAs and property managers and their attorneys know exactly how to use it to their benefit.

      I promised resources…read Neighbors At War by Ward Lucas and check the daily stories he posts on his blog neighborsatwar dot com. He spent 40 years as an investigative reporter in the television industry in Seattle and Denver. He heard many stories and learned the dirty little secrets of the HOAs and the CAI and exposed it. Shu Bartholomew has been active in HOA exposure for over 25 years and she has a fantastic radio show that exposes every dirty secret you can imagine in the HOA world. You can listen to the live show or the podcasts at onthecommons dot net.

      Finally, I will say this to the readers: I would not own another property in an HOA or a condo if it was paid in full and given as a gift. My experience has taught me how ruthless and dangerous living among ignorant power-hungry neighbors can be. No matter what sales story you hear there is no such thing as a good HOA. Every single one of them is just one vote away from being a hellhole like I have experienced. One vote puts a rogue board member in power and all homeowners become victims. I would not rent in an HOA because if the owner doesn’t pay the dues the renter loses the privilege of using the pools, tennis courts, golf course, exercise room, etc. In addition, in some areas the renters are finding when the owners don’t pay the dues the HOA puts a boot on their car and holds it hostage until the owner pays the back dues. This can cause massive and expensive inconveniences to someone that innocently rents an HOA controlled property and has no rights to vote for board members or even read the CC&Rs.

      If the listing says: HOA, I say stay away!!!!!!!!! I feel HOAs and condo associations are destroying lives, health, happiness, and financial security of home ownership in America.

      Again, I appreciate this article but this one very big aspect of home ownership needed to be included in this article. If there are no other options for ownership or rental besides an HOA or condo association the readers should consider living in an RV!

  4. Mjaycee

    I made an offer on a home in a pricey East Bay town on my 50th birthday. It was large enough to house my kids and me until they moved out and I decided to move to Sonoma County for a job. I paid $645,000 for it 10 years ago and it is now worth approx $920,000. I have it on a biweekly 15 year mortgage. Instead of selling it and buying a small home where I am now, Healdsburg, I am renting it out for $4100. per mo. and paying down my mortgage, the rent is just a tad less than the mortgage payment. But in a couple years should just about cover it. Yes I still have taxes, homeowners and insurance but I figure that by the time I retire in 5 years I can refinance it into a 30 year fixed, continue renting it out and have a nice retirement income while renting a less expensive, smaller home wherever I decide I want to settle. I would imagine if I did a total analysis like one that was done here it may not make total financial sense but it seems to work in my aging brain!!

    • Financial Samurai

      Life has a way of surprising us on the upside!

    • Tricia Richter

      Sounds like a really happy arrangement, Mjaycee. I’m very glad to hear that buying at 50 has worked well in your case! I think you’re right that in the end, doing what works *for you* and makes you both happy and comfortable is the way to go.

      The results of this hard-nosed analysis both surprised and dismayed me; however, they haven’t convinced me that the renter route is the absolute answer. Maybe I’m just a stubborn donkey, but I think you really just need to make the numbers work well enough so that you can be comfortable; it’s not necessary to squeeze every last penny out of one’s financial choices and investments.

      And as both you and Sam point out, there are all kinds of different ways that numbers, approaches, and circumstances can potentially be tweaked to make things pay off either way. Good stuff!

  5. dpuglas farley

    Tricia, Great article, Politicians enjoy promoting advantages of home ownership so that they can have a solid base of voters, and gerrymander their districts. Maintenance & repairs are required also, the roof, trees, furnace, painting, siding, plumbing, windows, sewer. Over 30 years this adds up. Single family homes should be bought to enjoy, not as an investment.

  6. douglas farley

    Also, maintenance & repairs could add up to 2-3 % of value for esch year. Buy a home to enjoy, not as an investment. Politicians enjoy promoting home ownership to create a steady base of voters through gerrymandering.

  7. steve

    Very interesting scenario. My question to you is, the 4.5% conservative value on the down payment doesnt calculate another downturn (which will happen in the next 30 years). 2007-2009 the dow lost 60% I believe. Two years of a downturn you would completely lose that 4.5% value. If your investment loses 50% (like most peoples did even with mutual funds etc…) it will take over 15 years at a conservative return to get back to net 0. Taking the opposite approach of owning your home, yes the home will devalue as well but you’re paying rent no matter what. I feel in that scenario the benefit of owning the home over renting because you’re paying off the principal whereas with the down payment and renting, you just want to get back to positive gains on your $200k you saved by not putting a down payment down.

    • Tricia

      You’re absolutely right that one or more corrections in the market are likely in the next 30 years. But in the 30 years through 2013, the S&P 500’s compound annual return was 11.1%. That includes the dotcom bust and the 2008-09 recession. So 4.5% is intended to be a very conservative estimate of return over the course of the entire period.

      I would assume that Jane Renter’s market investments would earn more some years than others, and during any correction, she’d rake in nothing at all, but it would average out to 4.5% annually. I don’t have the exact numbers handy, but I know that the market has more than recovered its losses from 08-09. Personally, I’m a bit shocked by how quickly it recovered!

      I agree with your point about “Paying rent no matter what.” I still believe there’s tremendous value in the relative stability of housing costs that one gains by owning rather than renting.

      • Financial Samurai

        The one thing I noticed during the 2001-2004 downturn and the 2008-2010 downturn as a landlord is that although my real estate values fell, my rents stayed sticky (the same), and went up. Cash flow is what it’s all about as a landlord. And if you can increase rents and get higher capital value, then you’re feeling really good.

  8. john

    I like your essay. I am in essentially the same situation as the author. But I have kids, and therefore potentially having an estate is an asset. If not for me, then at least for someone. And that someone might then be much better off.

    • Tricia

      Absolutely correct on that point, John. Important factor for folks with kids. While I will be happy if I can leave something for my nieces and nephews, I don’t feel the pressure to do that that I would for kids of my own. Of course, if Jane Renter dies with a lot of cash/stocks/bonds, those also can be left to any heirs she may have just as easily as a home can. More easily, in fact. But if you’re thinking in terms of leaving a home that will remain in the family, that’s a valid point to consider.

  9. Ronny

    What about the FED’s quantitative easing programs and inflation? If QE1, QE2,,, QEx are mismanaged, excess inflation could result and eat up the renter’s real return on investment. Real estate has proven to be a good hedge against runaway inflation.

    • Tricia

      Yep, that’s one of the great unknowns. The flip side of that is, What if we have another crash in home prices? I think the crux here in the Bay Area is that homes are SO expensive that they force buyers to tie up a disproportionately large amount of their funds in a single fixed asset. Unless you’re already pretty well off, it seriously hinders one’s ability to diversify your wealth. Thus, the dilemma is a bit thornier here.

      • Anonymous

        Because interest rates on mortgages are actually smaller than returns on most investments, you can put some of the equity in your home in the stock market. Of course there are risks, but with the threat of inflation and the dollar getting worth less, real estate in a desirable neighborhood should continue to appreciate so a house is probably still a good place to put your money.

  10. Frank Stein

    Are you kidding me? Yes, the owner will still need a place to live, but so will the renter. The owner can sell the asset and use that to pay future rent. The renter will have to pay rent without the obvious advantage of a large asset. But the real issue is the quality of life. I have been a home owner for 30 years (25 in a single family home and 5 in a condo). I can do whatever I want in my home within the building code. TV mounted on the wall. Bo problem. Knock down half the wall between the kitchen and the living room. No problem. Wire house for internet (ok this one is years old), no problem. Renter cannot change the property substantially, is subject to arbitrary rent increases and can be forced to terminate residency. Really, except for young people or transient people, it a no brainer

    • Tricia

      I agree about the quality of life, which is why I continue to lean toward buying. With regard to the argument about having the asset to sell to pay future rent (should a crisis occur): the numbers point toward stock market investment garnering greater returns than home appreciation, when all costs are considered. So while having the fixed asset is indeed a benefit, projections based on past performance indicate that putting one’s down payment into the market rather than into a house pays off better.

      Doesn’t mean I *like* seeing that result, it’s just the way the numbers appear to fall.

  11. Santo Tomaso

    Great article. But don’t underestimate the “maintenance” costs of owning a home. Things constantly break, wear out, need to be maintained or replaced – lawn care, plumbing, painting, new roof, etc – and this can lead to bigger problems if these situations are not addressed quickly. Unless you’re planning on doing the maintenance yourself, you will always need to find a skillful, reliable person who will, and who will charge you a reasonable rate. Otherwise, you’ll find yourself in contractor hell, where workmen don’t return phone calls, don’t show up, and overcharge you for doing substandard work that you could probably do better yourself. On the other hand, if you are an owner planning on doing your own maintenance (God bless you), how much free time do you have? Do you want to be spending a big part of it working on your house?

    If you are a renter, the landlord is responsible for maintenance, which he presumably can do cheaply. And yes, sometimes a landlord can pass on those expenses to renters, but only if the local rental market will allow. Renting means a lot less unplanned expense for you, less time wasted dealing with contractors and repairs, and fewer headaches.

    Something to consider.

  12. anne

    Yes, but. . . Say someday the “renter” is sued for some reason–(dog attacks friendly mailman). The attorneys in that lawsuit will see that huge pile of “CASH” sitting on her side of the table and the game is over for Jane the Renter! It is unhindered, easily accessible CASH (or bonds, or stock, or whatever my point is it is unencumbered). HOWEVER, if she had invested in the home she lives in that makes it much, much, much more difficult for the attackers to get hold of the equity and therefore reduces the threat. She can homestead a small portion of the equity, and has the home loan working against the asset, such that the “AVAILABILITY” is severely limited. In today’s America that is a real, genuine concern.

  13. Jane

    What about someone with CASH???? No mortgage…I am trying to make this decision NOW

    • Tricia

      Wow! I envy you, Jane; that’s a good dilemma to have! But of course, as with everything financial, the response would have to be, “It depends…” On how much cash you have; how much your potential home purchase would cost; how your overall financial picture looks; whether you are ok with the headaches/responsibilities of home ownership vs. the “freedom” of renting; etc.

      I could guess what our friend the Financial Samurai would suggest: With interest rates currently as low as they are, optimize your leverage power! If you have that much cash, find the home you really want and put down a down payment large enough to squeeze out the best mortgage rate possible. Then invest the rest of your kitty in a well-diversified portfolio. That way you get the best of both worlds. If you have the cash, make it work for you!

  14. DAVID

    I sold my home of 8 years in 2011 and am currently renting. I would love to buy a home, and am fully capable with 50% of the cash to do it, but am absolutely positive, without a doubt, certain that an economic depression that will be devastate our way of life is coming soon and will decimate home prices. Not because they will be cheaper to build but because few will be able to afford the debt payments (or rent payments) to support these current debt fueled price levels. If you get locked into a 15 or 30 year loan when this happens you are trapped with an asset that you can’t sell without taking a large loss, and you will be bankrupt! In my opinion its better to rent, invest your cash in physical silver and gold, and wait for the unfortunate opportunities down the road after the day of reckoning.

    • Tricia

      For all anyone knows you may be absolutely right, David. but what specifically has you so pessimistic? I agree that prices around here seem pretty unsustainable, but the “up and to the right” trend has, in general, been steady for a long time. Of course, if we assume that Jane is planning never to sell her house, then the vagaries of the local real estate market have little impact on her…. unless rental prices take an equally precipitous nose dive, and her monthly mortgage/taxes/insurance/maintenance costs end up being larger than local rents.

  15. Vince


    Great article. We have been “schooled” from a young age that buying is ALWAYS better. We purchased a house in late 2006 as a flip and sold in 2010. It was not a house we would have chosen to live in long term, but thought we got a good deal. Bottom line is after that, I did an Excel spreadsheet with various portfolio ROI ,escalation rates, maintenance, mortgage tax deduction etc. and discovered that renting in fact WAS better than buying. Big thing for us now is we want to ability to choose our own appliances, paint color, flooring, re-model etc. without anyone else’ s restrictions. We intend to buy again but only because it provides us with that flexibility, not because it is a wise investment. Thanks for the great article.

  16. Laura

    You are still miscalculating the value of the house. I read your reply regarding why you are only considering the capital gain on the house; i.e. because you are only looking at expenses and net income. The problem, however, is that part of the mortgage payment is not an expense it is an investment. The mortgage interest is an expense. The principal payment is a purchase of an asset. The buyer is transferring one asset “cash” for another asset ” equity”. In accounting terms this is never an expense. Just like you do not count the 218k down payment as an expense, the principal payments are the same as the down payment, just spread over time. Thus you have 406k too much in your expense column for the buyer.

    Wealth is not measured by the income sheet it is measured by the balance sheet. Life enjoyment is measured by the value you got out of the assets you spend. Let’s ignore the 8k that your one scenario spends and assume that renter keeps the money invested for the 30 years. We can assume that the enjoyment of the house is the same, she had a house she liked either way.

    The real comparison should be how much in assets did she have to start versus how much she has at the end. To start in both scenarios is 218k. In the end the buyer has the house which is worth more than the investment account. The analysis does need to consider one other asset and let’s call that “cash”. What is the difference in cash flow over the 30 years.? Your initial estimate was almost break even, but I think you were correct in that maintenance should have been included.

    In theory, the renter has spent 100k less and will have that plus interest/growth in the bank. There are other cash flow and interest considerations in that the mortgage is less than rent initially, but let’s call that immaterial. So in the end, the buyer has the house and the renter has the investment account and some other savings from not having maintenance. based on the return rates in your example, The buyer is somewhat ahead at 30 years and more so after that. At the end of the day, however, it all comes down to what we think is going to happen in the future. It is a gamble on housing values versus stock market value. I lean a bit towards housing. I do not necessarily think it will rise more than the market, but I like the idea of having a tangible asset to diversify my investments a bit.

    • Anonymous

      As I approached this analysis, I was thinking in terms of buying the house as a “forever” house— i.e., they’ll be carrying Jane Buyer out in a pine box! Largely because an older buyer may well lean toward buying once and never moving, and because an older buyer has fewer years to really gain price appreciation “traction”.

      Thus I was indeed looking at this more from the income/expense and utility-of-money perspective rather than from the investing-in-an-asset perspective. Because if you never sell, everything you pay toward the house is effectively an “expense”. In the end Jane Buyer certainly has her fixed asset, but Jane Renter has the liquid assets reaped from market investment. Even if Jane Buyer does sell after 30 years, the total of her expenses over the years reduces much of the gain on her investment. And she has to find a new place to live when she’s 80 years old! Of course, there are always reverse mortgages or home equity loans if she really needs to pull out funds.

      All that being said, I completely agree with what you say here: “At the end of the day, however, it all comes down to what we think is going to happen in the future. It is a gamble on housing values versus stock market value.” In the face of that unknown, I’m inclined to go against my own numbers here and buy, because the real utility of money is about how happy it makes us. And this here donkey is pretty sure she’d be happiest in her own stable, with a manger full of carrots.

    • Tricia

      As I approached this analysis, I was thinking in terms of buying the house as a “forever” house— i.e., they’ll be carrying Jane Buyer out in a pine box! Largely because an older buyer may well lean toward buying once and never moving, and because an older buyer has fewer years to really gain price appreciation “traction”.

      Thus I was indeed looking at this more from the income/expense and utility-of-money perspective rather than from the investing-in-an-asset perspective. Because if you never sell, everything you pay toward the house is effectively an “expense”. In the end Jane Buyer certainly has her fixed asset, but Jane Renter has the liquid assets reaped from market investment. Even if Jane Buyer does sell after 30 years, the total of her expenses over the years reduces much of the gain on her investment. And she has to find a new place to live when she’s 80 years old! Of course, there are always reverse mortgages or home equity loans if she really needs to pull out funds.

      All that being said, I completely agree with what you say here: “At the end of the day, however, it all comes down to what we think is going to happen in the future. It is a gamble on housing values versus stock market value.” In the face of that unknown, I’m inclined to go against my own numbers here and buy, because the real utility of money is about how happy it makes us. And this here donkey is pretty sure she’d be happiest in her own stable, with a manger full of carrots.

      • Financial Samurai

        There’s one thing folks who haven’t bought a home don’t fully comprehend, which is the unbelievably amazing feeling of homeownership. Something about homeownership changes people’s attitudes completely. There’s a lot of pride involved, just like how I imagine a lot of pride in one’s kids.

        It’s a priceless feeling to own your own four walls. It feels good working towards a goal to pay down that debt.

        The best time to buy property is when you can afford it!

      • Justin

        Even if Jane buyer doesn’t sell in her lifetime, she has something she can leave to heirs or a charitable organization or something like that.

        Plus, the benefits of not having a landlord can be quite nice.

  17. kat

    I live in Chicago and have watched the rents literally double in just a few years because the investors have basically taken over. They raise the rents 15-20% a year in order to increase the value of their own property, so they can flip it around amongst themselves and bask in the stupidity of the masses for turning a blind eye. I’ve decided to move to Europe, rather than continue and feed the cockroaches and I’m not referring to insects.

  18. patrick wang

    Actually I agree with most of the thinking in the story, but she forgot one BIG THING by the time Jane is 80 years old, and that is one BIG THING.
    Even though Jane seemed end up with $894,683 more if she rent. But the story seemed to forget If she bought the house with the total cost of $1,144,762, she end up own the house at age of 80 and if she sold the house at that time, Jane will end up with $1,743,062 according to this story’s own data, which is 3.6% house value increase annually. So Jane will end up almost double the profit if Jane purchased the house and sell it 30 years later.

    • Tricia

      So yes, the anticipated sale price of Jane’s home after 30 years ($1,743,062) is nearly double the amount that Renter Jane would have made on the market if she had left her down payment compounding for 30 years. In both cases, Jane has her down payment amount “tied up” and inaccessible. The trick is the cash flow during those 30 years. The buyer is paying out more (even though it can be called an investment) over time than the renter. But both are effectively paying for a “commodity”— a place to live. You’re right that the buyer does reap the profits if she sells at 80; if she does, let’s hope she’s able to really enjoy them!

  19. Doug

    Wow, what a difference the center of the country makes. And a few years.

    My wife and I bought our first house (1000 sq ft half duplex) in suburban Kansas City in 1984 for $36,500. We paid it off after 6.5 years, remaining there for 8.5 in total.

    We built our current house in 1992 (1.5 story, 1650 sq ft on fenced 2.2 acres, 3 car garage). The land was $17,500. The total build was about $92,000 including the land. With the sale of our house and savings, we put 40% down and paid it off in 6 years on one income. We have been completely debt free since 1998. Taxes are $1800 per year. Don’t remember insurance, my wife handles that bill. It’s relatively low as well.

    Yes, there are additional expenses. We’ve replaced all the flooring, remodeled the kitchen and done HVAC work. With no house payment, all of this stuff is affordable. Home prices are still pretty low in our area. I’d guess it’s worth about $160K now.

    However, inexpensive housing means money is available for other things, e.g. investing, spending, saving, giving. We have been able to afford to live on one income . My wife chose to stay home and raise our kids. We just got our first kid through college debt free and went to Europe to celebrate. We’ve gone to China and adopted.

    I would argue that in an affordable market, buying young and paying off as fast as possible is the best long term option.

    • Tricia

      Ain’t that the truth! Buying young and paying off fast is the best option in ANY market, I would think. The Bay Area is just tough to leave behind. Despite the outrageous housing costs, increasing traffic, and hectic pace, people continue to come here. So the choice is pretty stark: Suck up the outrageous cost of living and deal with it, or leave. For me, it’s the only home I’ve ever known, and I’m a homebody by nature. So I’ll do my darnedest to suck it up and stay!

  20. Fred

    Fabulous piece and great comments! Here’s one more that addresses something I didn’t see anywhere. I live in pricey LA and 17 years ago we purchased a 3500 sq foot home for $550K. It will be paid off in about ten years. (Could pay it off sooner, however with a 3.5% loan and tax write-off would rather keep money working in the market. Home today is worth $1.5million. Wife and I are both 60. Plan is to sell and downsize to smaller single level home when we are 70, and move to a desirable coast side type community. (Like San Luis Obispo). I believe this will result in a windfall off at least $500k. There are many paths of home ownership, however for the most part buying trumps renting, IMHO.

    • Tricia

      Sweet setup, Fred! You and your wife have nailed it. And San Luis Obispo is beautiful, great choice for a place to retire. I think my own dilemma would be less daunting if I had a partner in crime, both from a financial and willingness-to-move perspective. But alas, I’ve committed the unforgivable sin of remaining single! Certainly not by design, drat it. But that circumstance does make me feel particularly tied to remaining in the pricy Bay Area where all my friends and family live.

      You never know, though; perhaps one of these days a handsome venture capitalist with a touch of grey at the temples will hop out of his Tesla to come to my rescue the next time I suffer a flat on my road bike. Then the world will be my oyster! In the meantime, I’ll continue to save, and see what happens with the housing market…

  21. Tallaman

    If you’re going to consider the value of your investment of what would have been your downpayment at age 80, you must also consider the value of the home you own. As you indicated the prices of houses have increased rapidly and that surely would have carried over into your own home, probably even exceeding your investment into stocks. Plus you would have no payments from that point on. But on the negative side for homeownership is the cost of maintenance of the home. In spite of your analysis, many many studies have shown that homeowners have the advantage over renters over the long term.

    • Tricia

      I agree that “homeowners have the advantage over renters over the long term.” But what assumptions are made about AGE in those studies? That’s the tricky variable here. That, and the stupidly expensive housing market in this area!

      The trouble is that when you’re an older first-time buyer, your time horizon is almost certainly going to be shorter than that of a younger buyer. You just don’t know by how much. It’d be great to suddenly have $1m plus liquid cash at 80…. but you’ve got to be sure to make it to 80 to pull that amount out, and even then, you still need a place to live. Oh yeah, and housing will be even MORE expensive then, and selling costs are not insignificant, etc.

      Had I included selling the house as part of the original analysis, this blog post probably would have exceeded 3,000 words! And admittedly, it would have been more complete. But this is why I’m delighted that folks are shooting holes in my analysis, I think it’s excellent— partly because I really still am rooting for Jane Buyer!

  22. Suzy

    Have you considered the capital gains tax exclusion of up to $250,000 on primary residence into the math? I bought in the east bay hills in 2009 and home values have pretty much doubled by now for my neighborhood. If I sell my house and move to lower tax – lower cost state or country, I get to keep my entire capital gains up to $250,000 tax-free as a single person. You can’t get that kind of massive tax break investing in stocks in non-retirement account although I have about the same amount of money to the value of the house in brokerage account and I do believe in diversification.

    • Tricia

      Excellent point, Suzy! This is exactly one of the myriad of variables related to selling the home that convinced me to exclude a home sale as part of my analysis. The reality is that there are so many “if/thens” possible in the buy/rent debate that I had to make choices about what to include. I figured it was pretty reasonable to present the question strictly in terms of costs, and make an assumption that Jane was looking for a permanent pad.

      For a lot of folks, however, the sale value of the asset at the end is clearly a trump card. And the tax break on the gain, as you point out, is substantial. I still feel that an 80-year-old may not feel so joyous about selling her home and seeking a new living arrangement, but there are some pretty spry 80-year-olds out there, so who am I to assume?

  23. Lyn Morse

    Problem is by the time you get 70 or so for many people it becomes a lot harder to take care of a house. Wobbly knees and arthritic knees and other health problems for some. I totally own my own home and am sick and tired of taking care of it and the drudge of keeping it clean. it sure isn’t clean like it used to be.
    Now I wish I was in Condo and live in just 3 rooms of it. Plus gathered all this stuff, have a room full of stuff i should go through accumulated over the years. Yard work almost impossible for me to do at age 73.

    I did take in Vets, one from Viet Nam war and one for Iraq and Afgh as I has empty rooms and I feel it is our obligation. They help with the repairs, plumbing, and yard work. BUT now I ask why did I need all this stuff. Have living room and dining room and don’t use them much except computer on dining room table.

    SO i suggest you consider what you actually need beyond 70 or so and what your health conditions could be beyond age 70 and whether you want to care for so much home. Truly after getting so much of what I wanted in life I now ask, “What do I need all this stuff for, it’s only more to take care of as I totter around and hubby deceased and son on his own?”

    Houses have lots of painful upkeep expenses. Can cost a lot unless handy yourself. Plus even if you are well you spouse may have health problems up to critical levels when older. Consider you may be taking care of spouse and house simultaneously can happen.

    I enjoyed my home and its in lovely residential neighborhood with great neighbors and convenient, great elementary school for my son was around the corner when he was young. I’d hate not having been here but sure wish I had less house to take care of. Just put in new carpet, kitchen floor, sink, changed plumbing and more. Had whole house painted, put on new and expensive siding, still need new garage doors and kitchen counter tops. Yet I’d rather be doing more fun things than worrying about the stuff and stuff that needs doing around here.

    One more saving is keep careful eye at charities to furnish. I got 2 gorgeous sofas for $75 each, a carpet that makes the decor in my den perfect for $12. Auctions too. Look at Buddy’s Antique auction online. He gets great stuff, often better made because it’s older and much of it in really good condition. You can save a bunch furnishing that way too and it’s great fun. By the way Buddy does take phone bids on his auctions usually on the first day of the month.. So even if you live elsewhere you can buy from him. I bought lovely chandelier for $60 last time at Buddy’s.

    Too charities have pictures. Most of my pictures on the walls in my home I paid less than $25 for. Oh and by the way the clothes you can get at the charities gorgeous. Just bought 3 tailored women’s jackets for $3 each at the charities, one an Alfred Dunner. I have so many clothes I’m almost out of closet space. Takes me 6 months to repeat an outfit I have so many.

    But just don’t forget when you buy a house you may become tired of taking care of it at age 70ish as I am.
    If I hadn’t moved my bed downstairs and live in it like a 3 room apartment I’d really be unhappy. With my knees I can climb steps but very slowly carefully hanging on. Even curbs a problem unless there’s something to hang onto to steady myself.

    So there’s lot to consider when buying a home at age 50. You may not realize how tired you can get of house care and work at this age. That’s why so many people downsize.

    • Tricia

      Lyn, I’m so grateful for your perspective here. Many folks have posted that the buyer really comes out ahead because she can sell her house at 80 and reap the financial benefits. As you point out, Jane Buyer may well tire of the upkeep as she ages, but one of my assumptions was that Jane would prefer to hunker down and remain in her own house. It’s good to consider to realities from the perspective of someone who’s “been there”.

      Given your feelings about the upkeep and expense, are you considering selling and downsizing, or even renting? Or do you feel really attached to your home, with all the memories, despite the work to keep it up?

  24. Stephen Way


    I appreciated your blog post and sharing your analysis, which allows me to compare it to my own analysis using similar assumptions. While agree with much of you analysis, I have a few critiques.
    1. There is a huge benefit to owning if Jane Buyer lives past 80. Her home will be paid for yet a renter will be spending more than $50K per year on rent (although, let’s not forget there are ‘operating costs’ to owning a home so it’s not costless).
    2. You cannot consider the return on the down payment as a renter without considering the home appreciation. It is not an ‘apples-to-apples’ comparison. At the end of 30 years, the home buyer could cash out the appreciation in their home and choose to rent at the same cost to as the Jane renter. Or, she could cash out some equity, downsize, and invest. Any analysis has to assume the house is sold, either at age 80, at death, or some other point in time in order to be comparable to the rent scenario.
    3. As many people have pointed out, you cannot under-estimate maintenance. Maintenance is not just ongoing upkeep and repairs. It is one-off major repairs and also upgrades you will need to make at some point to help realize the assumed appreciation. You will not realize as much at the sale point if you house has not been upgraded for 30 years and it is ‘competing’ with newer or more recently remodeled homes on the market. The lifestyle has to be maintained.
    4. While you are trying to keep your analysis simple (which I like), renting versus buying should be compared using Net Present Value based on time value of money. Buying will tie up more cash through the life of the mortgage and the benefit of the home appreciate will not be realized until the end at the point of sale. Renting will look worse on a total cumulative cash flow basis but more equal on a NPV basis.

    So, incorporating #1 through #4 into my analysis, it is coincidentally a near ‘draw’ as well based on the numbers alone. It should be close to a draw if markets are efficient, otherwise rents and home prices would needed to adjust to correct any short-term dislocation. The recent steep rise in home prices in the Bay Area is due to a surge in demand for rentals and related rental increases.

    Of course, one has to consider the many other qualitative issues, risks, time horizon, etc. At points in time, capital markets can crash, homes can be destroyed by an earthquake, or fall in value due to a recession. I personally have liked the flexibility, low maintenance, and the liquidity of renting. But, I am also reaching mid-age and there could be a time in the near future where I want to feel more settled and the enjoy the lifestyle of owning a home.

    Regardless, those who insist that renting is ‘throwing money away’ are misguided. Sure, people can make money in residential real estate… in other investments as well. However, unless you downsize, reverse mortgage, or sell your home, you will never realize the appreciation (although one’s kids might).


    • Tricia

      Steve, this is absolutely awesome! You succinctly touched upon a huge number of variables that I wasn’t able to address in my original post, and this adds tremendously to the discussion. I realized that my original piece was pretty simplistic; it’s a pretty complicated topic to try to treat fully in a blog post that one is trying to keep below 2,000 words. I’m really delighted by the thoughtful discussions it’s prompted, however, and your comment here is outstanding. Thank you!

  25. petey

    It seems like the cost of downsizing, after having fully paid the house off isnt taken into account. I don’t think renting would compare with owning.

    Also, I know this is an example for San Francisco, but rates are different in Austin. In Austin, a 3br apt would yield $1650/mo, and a 4br home yields $1700/mo. (So you get $500/mo from property tax, and $900 for P+I) So even though the prices are similar the 1250 sq ft apartment and the 3000 sq ft home (plus 2-car garage) are not comparable, even though the prices are similar. It comes down to quality of life.
    Also, house prices in Austin are $200K, and a 40K downpayment is much more manageable.

    • Tricia

      My eyes grow misty at the very thought of an adorable little cottage in a lovely neighborhood for $200k! I understand Austin is actually pretty livable, too, except for the heat in summer. Lots of jobs, so a good economy. Hmmm…. perhaps I should be thinking about purchasing rental property in Austin while renting in the Bay Area….

  26. Hannah Ty

    Another thing is if you’re renting and your landlord decides to sell, then you’ll have to rent based on the market value. I bought a small 2 bedroom 1 bath in berkeley close to campus, my mortgage is 1425/ month down payment of 30k plus closing cost and taxes and yearly property tax and insurance . House will be paid off on October 2017 I will be 46 years old by then. When I bought my house rental for 2 bedroom 1 bath is about 1200, now about 11 years later if I want to rent my house I can ask for 3k easily. I can just move and rent a studio in Vallejo or Richmond for 1200 and will still have about 300 dollars so I can semi retire. I just work in a coffee shop and sell online to add some $$$ on my income. I earn way below the median salary here in the Bay Area.

    • Tricia

      Wow! Well done, Hannah! It’s fantastic that you’ve been able to accomplish that on a below-median salary, and sounds like you’re pretty set with the cash flow. How do you think you’ll feel about renting after living in your own home for so long? Will it feel weird to rent out the home you’ve owned and lived in for 15 years? It sounds like you’re pretty practical though, and it won’t be an issue. Really impressive, thank you for sharing this. It definitely makes me feel hopeful for my own buying ambitions!

  27. Tim

    You missed the boat. It’s too late to buy. Just rent forever now. I’ve seen all those numbers before, and they all creatively convince people who are inclined to rent that they did the right thing. What the numbers ignore are several points.

    1) Tax breaks not factored in. Tax breaks can chew a substantial amount of cost vs. renting.
    2) What, no appreciation? Why is it logical to ignore home value appreciation in these exercises? Your own historical chart shows that over time, the home will appreciate. Yes, there may be a dip during a Great Recession, and smaller dips along the way, but the long-term trend is up, up, up. Home prices tripled in SF since around 1999.
    3) Oh, look, magically your rent never increases, either! Good luck finding *that* in the real world!
    4) Where does it say you need to put 35% down? The only people who do that are people who are rolling over money from a previous home sale. That 35% number is used only to skew results toward renting, because it forces that cash into a low-return investment vs. a theoretical higher-projected return from investing in stocks or mutual funds. I say “low-return investment” here, because the money is being used to offset a low interest rate, and no rate of return is given on that increase in property value.

    Put another way, had you paid 100% cash for an average house in SF 20 years ago, you would have seen nearly a 400% return on your investment over that period. By investing only 20% down, you would have leveraged that 400% return against only $60-65K, gotten a tax break and been able to invest whatever other money you had (we’ll call it the theoretical difference between the 35% down suggested by your numbers vs. the 20% which is more than ample.)

    For someone who is lifelong committed to staying in one location, renting is the silliest thing you can imagine almost 100% of the time. For people who are nomadic, renting begins to make more sense when factoring in the costs of selling homes and financing new loans.

    Think of it this way, if renting real estate was such a worthless proposition, why are there landlords? Why would they invest all that money to get nearly a wash on their investment 30 years later? The math in your examples just doesn’t add up.

    • Tricia

      You make a lot of good points here, Tim. Let me point out, though, that I did factor in the tax breaks of purchasing, and also factored in rent increases. Not sure how you missed that… or perhaps I’ve misunderstood what you meant on those two points? Putting down 35% allows the buyer to keep the mortgage down to a reasonable size, especially relative to rents. Your points about leverage are good ones, no doubt.

      The key sticking point for most commenters is definitely the appreciation/sale price, so you’re not alone there! I guess Jane will definitely have to plan on selling at 80 and going on a world tour! I do hope you’re wrong about missing the boat, though…

  28. Pam Morton

    I liked your post but your data is based on averages. With purchasing real estate, the saying of location, location is very true. My husband and I have owned 3 homes while you have been renting and turned our real estate into a large part of our retirement plan by buying fixer uppers, living in them and selling for big profits. We live in Marin and love it here. I say wait for the next downturn and buy below market value. Use the price per square foot as one of your data points. If you buy in a good location, you should come out ahead in the long run.

    • Tricia

      That’s what I’m hoping for, Pam— the next downturn! It’s just a question of time….. but hopefully not TOO much time! Nice work on the flips and being able to swing Marin. Would love to live up there– I’d go running/mountain biking on Mt. Tam daily!

  29. JP

    The biggest problem with this argument is always the same. Who the heck got 11% return in the market in the past 10, 20 or 30 years? I read a lot of financial publications, and there are a ton of articles pointing out that few people even get to 8%.

    Also to consider, as others have mentioned:

    1) At age 50, few people get 30 year mortgages.
    2) In any rate, most people pay off the mortgages in under 20 years; with inflation and increase in income, it becomes much easier for people to toss more money at it.
    3) When you sell (in your example) you get all your money back and join Jane Renter in her apartment complex. You both will be paying the same for rent. She will have $250K in savings; but you will have over $1 million.

    • Tricia

      I like your scenario, JP; adds fuel to my fire that still burns to buy!

  30. Mike Bergelson

    This is a great discussion. The New York Times has an excellent online calculator that was built by Mark Zandi the Chief Economist of Moody’s Analytics and others. As far as I can tell it factors in everything you mention in your post plus the other items readers have mentioned in their comments (repair costs, inflation, residual home value, etc.).

    I plugged in all of the numbers mentioned here and it turns out that it’s better for Jane to buy than rent. The break-even rent is around $1,700 today – 15% lower than what she’s able to find in your hypothetical case.

    I can’t recommend the interactive rent vs. buy model highly enough to help settle these debates:

    • Tricia

      That calculator is fantastic, Mike! I’ve seen quite a few of them on the ‘net, but that one is by far the most complete. Thank you for sharing the link. Don’t know how I never found it before.

  31. Ron

    I would find another financial advisor. The height of the recession represented a golden opportunity for investing in real estate. Look at your charts. While home prices in hot markets dropped by as much as 30% rents were stable or increased. At the start of the recession home builders were begging for customers. I reviewed the situation and ended up building a second home on Cape Cod. Thanks to the recession construction cost were about 30% lower than pre-recession.

    There are other advantages to home ownership that you did not mention. As we approach retirement we have been focus on controlling costs. One big unknown is the future cost of energy. As we approach retirement most of our home improvement projects have focused on energy efficiency & sustainability. We installed solar panels and enhanced/added features to take better advantages of passive solar. Overall, we have managed to reduce our heating cost by 50% and use our excess solar to power a plugin hybrid. We estimate 80% of our energy costs are fixed for the next 20-30 years.

  32. Viv

    If things could work out so that you can move, you can buy a nice house or build one for much, much less than $600,000. After selling my house in the Atlanta area, I had enough money to build a small, conservative brick home on 16 acres of rural land that I already owned in another state. The bank really went to bat for me in helping me get that loan as at that time, my income was very low and I’m single. Now since I’ve retired, I live below the poverty level. However, my place is paid for! A brick house is also low upkeep. The property taxes where I’m at are very low as I pay less than $300 a year and I’ll be exempt from paying this when I reach 65 in another year. I can’t live any cheaper than this and I feel like I’m living in a vacation house out in the woods! Making home ownership a reality instead of just a dream may mean looking at what you’ve got to work with and then finding a place where that will be enough to get the job done!!!

  33. Wendy

    Great article…it reinforced my argument that it’s OK that I’m still renting after all these years, despite everyones’ recommendations. Besides the fact that my monthly ‘payment’ is less than their monthly ‘payment’, I am constantly reminded how blessed I am to have Someone Else do the landscaping, repairs, maintenance, upkeep, and simply changing those hard-to-reach bulbs. I love my little apt…and I don’t have property tax, either.

    • Tricia

      I’ve actually heard from several folks who tell me they have a great relationship with their landlord and their rent rarely gets raised, so there is always that possibility. That’s an ideal situation, certainly!

  34. bill

    The best time to plant a tree is 10 years ago. Same with real estate. You presented a false dilemma. Either real estate or save. You can and should buy as early as you can.

    Sam is dead right. The points to real estate ownership is this… 1 for a small down, you can dramatically leverage that investment ( even if you in turn rented it out in favor of staying with mom) 2. It is a hedge against inflation. In particular in Ca. .. rents will rise once you lock in, you can cap your housing expenses for the rest of your life.

    • Tricia

      The (relatively) capped housing expenses is definitely the most appealing part to me. Although, as many folks have pointed out, maintenance is not cheap. And yep, “10 years ago” would have been great, but there would have been some serious leveraging in play at that point. Saving up a reasonable down payment in these parts is a piece o’ work!

  35. Stacy

    Or do what we did. Buy a house in cash & own it by 42. If everyone stopped eating out especially in these big cities, decided that they didn’t need that $70k suv, & didn’t need a mini mansion, didn’t use credit cards, it can be done. I’m a stay at home mom & hubby is a construction worker. Priorities people, don’t worry about what everyone else thinks. If you have a mortgage, YOU DONT OWN YOUR HOME, the bank does!

  36. Jonathan

    Dear Trisha, Your article is thoughtful, but misses the mark on several major fronts: The time value of money, not just the opportunity cost of the down payment; the estimated rental cost of a property valued at $625,000.

    To properly prepare the comparison, a realistic rent must be known. Your example values this property at a whopping 26x multiple of the initial annual rent. I am not sure I know of any landlord who would accept that rate due to competing long term investments returns available. In suburban NJ, the multiple is much closer to 15x than 25x. This is the first assessment a buyer should make because it tells you whether or not the property is fairly valued.

    Even so, the cash flows for each scenario still need to be discounted at a “return” rate – usually the return on another investment – hence the opportunity cost of the down payment. After discounting the two streams of cash flow to time zero one can compare the financial costs of renting versus owning.

    • Tricia

      Ah, Jonathan, you have pointed out the insanity that is Bay Area real estate. “Fairly valued” is a very relative term here! Conventional wisdom is that it’s a challenge to make money landlording in this area precisely because rents can’t be set high enough to cover property costs, unless you’ve owned the property so long that costs are relatively low. Or you paid all cash! I noted this when I mentioned considering buying a property to rent out until such time as I was ready to occupy. I couldn’t have charged enough rent to cover the mortgage/taxes/insurance.

      I’m curious to understand better what you say about “discounting the two streams of cash flow to time zero (in order to) compare the financial costs of renting versus owning.” Can you elaborate?

      • Jonathan

        I will tell you the property market in Shanghai is much the same, but fortunately, not in NJ. My wife and I were looking at purchasing property in Shanghai but after comparing the rent multiple to NY/NJ I showed her you have to be crazy.

        What I was referring to was that your tables showed the absolute dollars being expended in the “lease vs. buy” analysis rather than comparing the two flows on a discounted basis. This is the traditional question of financing an asset using various schemes: outright purchase; purchase and finance via a loan; rent or lease.

        I may be wrong, but the flows in the charts were not the discounted flows, i.e. they were the total dollars expended through various points in time. The question becomes how do I compare these two different streams of dollar outflows? In a time horizon of say 15 years, one can compare the 180 payments of a rental payment stream to the dollar outflow of a purchase (which would include a positive terminal value for the theoretical sale of the property). The two cash outflow streams are then discounted to time zero – today – using a discount rate you can get with an investment (opportunity cost rate).

        If I am willing to rent a home for an annual rental of $25,000 (with increases of 4.5%) for 15 years and my investment rate is 3.75% (because that is the yield on the US T30 bond plus 50bps) that is the same as saying I will pay $380,321 in today’s dollars to rent that home (assuming rent increases of 4.5%.

        This stream is compared to the cash flows of purchasing: down payment ( I assumed $125,000); annual mortgage payments on the remaining $500,000 balance = $46,557 per year (15 years at 4.25%); real estate tax of $6,250 annually growing at 4%; and the terminal value or what do I have at the end of the 15 years?

        The NPV of the mortgage cash stream is -$526,805.16 (higher than 500K because the mortgage interest rate is higher than my investment rate). The NPV of the real estate tax is -$91,902. The terminal value I used is $1,725,601 representing the $625,000 appreciating at 8% (just a guess) with the final value of $1,835,746 reduced by a 6% sales commission netting me $1,725,601 future dollars. The present value of that cash today is $993,388 (all of these flows discounted at 3.75%).

        So – in this case – the purchase and sale of the home yields $994K-527K-92K-125K= $250K vs. a negative $380K for renting. Obviously, this is extremely dependent on rates and a higher discount rate would have the effect of lowering the rental “cost” and also lowering the huge terminal value which is driving the positive purchase outcome. Note – all my numbers exclude the impact of taxes.

        Please feel free to write if I was not clear or I can send an excel spreadsheet with a template.


  37. Jerome

    Interesting read. Two very important things to keep in mind:

    1. The mortgage interest deduction – it’s not just about the cost of the mortgage but more importantly the “after tax” cost. If you are renting, you don’t get this tax
    benefit, which is significant on a loan up to $1M.

    2. The last great tax break: $250k per person ($500k per couple) in tax free capital gains when you sell your property. Didn’t see this mentioned.

  38. Brendan

    The value of the house will be $1.8 million for Jane Buyer at age 80, assuming 3.6% average historical returns. That puts her ahead by $650,000, vs. -$900,000 for Jane Renter. Jane Renter paid $242,000 less during that time. If she invested that money, she may have made another few hundred thousand, but she’s still over a million dollars behind by renting.

    Buying is almost always going to be better long term, especially if you finance the home purchase, because then you are using leverage to double or triple your returns on your down payment. In the short term that same leverage can put you seriously underwater, but over 30 years, that average return of 3.6% is more like a 7% return on the down payment. With a more typical 20% down payment, it’s more like 9.5%.

  39. gettinrentuls

    HUGE Flaw in the calculation of lifetime rent v. mortgage:

    at the end of the mortgage, the home is paid off.

    at the end of the rent, she gets nothing.

    the professor dont know jack that is why he is a professor. i hang out on boats and jet skis in most my free time.

    You win by doing this – dont pick jobs or professionad that have a potential less than 150K

    uy multiple cheap places cash, pay your rent in a nicer area off the rent from multiple cheap places

    if you buy a residence, buy one that rents out for what your mortgage is, or make sure you have enough to put down to create that situation before you move in.

    the key is yours

  40. Eric

    I think you are assuming that Jane will be working until she is dead. Try, assuming a retirement at 70?

    We are also assuming that Jane was a very good saver her entire life, that is not a typical case. Many Americans are living on the financial edge. I do not think the youth today (myself included) are discipline enough to not buy the latest gizmo, go out to eat, or vacation. The house earlier in life is almost forces oneself to ‘save’. Rent for $1000 + invest $1000 or pay a $2000 mortgage. + tax benefits.

    We are also assuming that Jane will leave her money in the market and not have to withdrawal from it. At 70, when the rent is nearly $3600, where is that additional income come from?

    You forgot about the tax benefits of owning the home for Jane the buyer.

    You forgot to mention reverse mortgages

    Also like others have said:
    “at the end of the mortgage, the home is paid off.
    at the end of the rent, she gets nothing.”
    So essentially her net-worth will be near zero, medical bills at that age are going to be costly. If that 15 year mortgage was paid off a reverse-mortgage would help.

    Also as one ages, you would want to invest your money in a ‘safer’ return than the stock market. You mentioned that (and its true) that the S&P returned 11% and the, housing market only returned 3.6%.
    People seam to forget that, yes, the market does average out to about 8-11%, but , but, but, that’s only the average, what really happens is years of great returns, and then a crash/recession. Example, from today (Sept 12, 2014) in the last 5 years the market is up 90%

    Also mortgages are leverages money, so in your example with the house price of 625K @ 3.6% =
    22.5K whereas the 218K down payment withheld would return 24K, 1,500 difference. And again 35% down payment is not typical, I feel most struggle to get to 20%.

    Jane is very very very screwed if she lives a day pass she ‘calculated’.

    I think your numbers are slightly bias towards renting, based on cold numbers and calculations, there is real life situations I think to consider, like the ones mentioned above.

  41. Jeni

    Look at it this way, It’s very simple. Renting, You are paying the landlords mortgage, therefor building equity for that other person. You will never get that money back. The buyer has at least some recourse in regaining moneys spent through sale of the property.
    In Florida, after 2 years of homestead you don’t have the same capital gains tax issues, if you sell your home, you may exclude up to $250,000 of your capital gain from tax. For married couples filing jointly, the exclusion is $500,000.
    This artificial is interesting however it depends largely on area, and financial status of the individual. Putting much less down and buying a lower priced home changes this completely.

  42. JD

    Like any investment, you can lose money by purchasing a home at the peak of the cycle. We’ve been in our DC-metro area home since 2007 and we could not break even if we were to sell now. The sales commission is the real killer in areas with super-high home prices. We want to downsize but we don’t want to take a loss on our home. The capital gains exclusion is useless to us, and to so many who purchased at the wrong time. We’ve decided we’re simply losers when it comes to real estate. Unless you’re a handyman or purchase only at the bottom (and who can predict that?) you are not assured of a gain when you sell your home, and the real estate commission can easily make it a loss. Good luck!

  43. Laurie Almoslino

    As another person noted, the analysis above completely left out the most important part – the equity built up in the home. At the end of x years, Jane the mythical renter has a stock portfolio which may or may not have achieved the ‘conservative’ 4.5% gain, but Jane the mythical buyer may have a considerable amount of equity in her home. Also, Jane the renter still should have insurance on her belongings.

    one more item not mentioned at all – Jane the buyer has not only had a tax deduction for all those years, but has been able to deduct other items because the house tax deduction has put her in a position to itemize deductions.

    and on top of all this, Jane is apparently single. If Jane were married and/or had children, then buying a home becomes much more appealing as it provides stability for the family.

  44. JN

    Just what I want to do for the rest of my life (not matter how long it is.) Live in a rental. There are more important matters in life than how much $$$! Nothing in better than being home in your own home . Watching little seedlings that you planted soar into full grown trees. Change the colors of the walls. See your children walk in the door and open the refrigerator like they did when they were little. Block parties.. loyal neighbors… Too bad the author doesn’t get it.

    • Nila Ridings


      Unless you want that dream and opportunity to be totally destroyed, I would highly recommend you avoid HOAs; Homeowners Associations at all cost. I’ve learned nothing destroyed the dream of home ownership like an HOA. And nothing destroys a life’s savings like an HOA. Before you go house hunting, I know you’ll find Ward Lucas’ book, Neighbors At War to be priceless and value information.

  45. tom w

    I am a male aged 59, never been married and no kids. 16 years ago (at age 43) I purchased a two bedroom – one bath condo unit. It was my very first home purchase. I started off with a 30-year fixed mortgage; and then in a couple of years, went to a 15-year. The place was a “fixer-upper”.

    Right now I feel like I want to sell my condo for a couple of good reasons. I need the money when I sell; and I can’t stand the place where I live at now. It was a nice place with nice people, but recently it has changed. The people are not friendly and I feel like I have nothing in common with anyone at my complex. The quality of people had changed when a lot of the owners decided to rent out.

    Also I need the money because I’m practically down to nothing. I had a few thousand $s saved up; but a recent medical procedure I had wiped it out with the medical bills. At the time I purchased my condo, I had inherited money from my deceased parents. I sunk all of the money into my condo. Over the years I was able to put money away from having a pretty good job. Plus I had a 401K plan that went “kaput!” . Just recently with my pay and expenses, I can’t put much away. And now I have all kinds of repairs and cosmetic work to do that I can’t afford.

    I want to sell and then to rent. I would like to live in a 55+ community because I’m sick and tired of having to deal with kids and immature adults at my place. Plus, my downstairs neighbors are jerks and will not be leaving soon. Some people are telling me that I will throwing my money away with renting. Maybe so, but I’ll have money from the sale. Plus, who would I leave my condo to if I were to pass away? If I stay with the condo, I’ll be struggling for a long time.

    Another option I have is to move in with my sister who is 3000 miles away. She has suggested that I should move in with her. I would be a good idea, except she’s married with two teen-aged kids and a husband who is very loud and opinionated. Plus they have dogs; and I don’t like dogs that much. She suggested that I should be with them so that I’d be safe if something happened to me. But I know that I could not stand it. My sister and her husband are in their 70s, so something could happen to them. What would happen if I moved there and something happened to them? I’d be all alone in a strange place. Her children would not take me in.

    Please help! Sorry that this is too long. Thanks.

    • Nila

      While friends can be well-intended in their advice they can also be ignorant to the facts.

      Ownership of a condo or any HOA property comes with massive risks. When you purchased the condo you signed away your US Constitutional Rights. You became business partners with all of your neighbors in a non-profit corporation. And the biggest risk is that you became the guarantor on all debts, loans, lawsuits, liabilities, settlements, construction defects, and disaster rebuilds for the entire COA/HOA/PUD/POA or whatever acronym is used for your condo association.

      Many people have done the exact same thing you did by using inheritance to purchase a condo. Some have inherited condos and the end result has been total financial devastation. As you are experiencing there is bitterness that often times happens in common interest ownership property. This quite often results in nasty and expensive lawsuits that end up bankrupting the owners with assessments they cannot pay. 72% of the HOAs in America are underfunded in their reserves. (Escaping Condo Jail by Sara Benson and Don deBat) Are you financially prepared to fork over $10,000 for your portion of a legal bill that could be created by your board members suing your neighbors for some nonsense reason? Or just because they like to bully people. It only takes one vote to put a rogue board member on the HOA board and there goes the entire neighborhood. Or would you be willing to be forced into foreclosure where the HOA takes your condo from you because you cannot pay the assessment?

      I’ve studied HOAs extensively after becoming a victim a decade ago. I’ve lost my entire retirement savings, had my health affected, and will take a $200K loss to get out of the nightmare. I would not own another HOA property if it was paid for and given as a gift!

      Condo and homeowners that are mortgage-free or have a substantial amount of equity become targets for the corruption that is ever-present in HOAs.

      Since you were asking for advice of what to do…here’s my very well-educated on this subject opinion: SELL AND RUN LIKE YOUR HAIR IS ON FIRE!!!!!!!!! You are better off renting than owning any property with common interest ownership. As a tenant you can move if you aren’t happy when the lease expires. Not to mention in many areas condos are impossible to sell.

      I would highly recommend these sources for educating yourself. The books can be found at your local library or on Amazon. Neighbors At War by Ward Lucas. (website: Escaping Condo Jail by Sara Benson and Don deBat. Privatopia and Beyond Privatopia by Evan McKenzie, HOA Warrior and HOA Warrior II by Shelly Marshall and Villa Appalling by Donie Vanitzian. And you can listen to the experts on the topic of HOAs on the podcasts of this HOA radio show;

      Best of luck. I hope you will find all the answers to every question you have about your condo ownership in the resources I have provided. I sure wish they had been available when I made my townhouse purchase. They would have been a life-saver.

      • tom w

        To Nila
        Thanks so much for the excellent reply! There was so much you said that I didn’t realize. I have a good friend who is 80 years old and he has just told me to stay with it no matter how much I can’t stand it. But yet, he can’t seem to convince me in any way why I should stay. The more I tell him that I want to leave the condo, the more that he does not want to hear about it. Although lately, he has gotten better about this. I think that he should read your reply to me; or I’ll just show it to him. Funny thing is that about a year ago or so, he told me about some people he knew that live in condos and they had a sudden outrageous assessment fee. He was very negative about that. So why should he expect me to put up with it? On top of putting up with the lousy neighbors I have – and it’s not getting better, it’s getting worse.

        At my age now and my marital status, what good would keeping the condo do me? For now, I have a Will to leave it to my sister (and her two kids) and my brother. They don’t deserve it at all! And it would be complicated for them to try to sell it because they are 3000 miles away.

        OK, I have a question now. My close neighbors tend to be noisy. I feel like I should let them know that there will be potential buyers coming to see my place. It should be a warning to them to behave while people are coming to look. The question – is there any kind of action I could take with any of my neighbors if a prospect is interested in buying; and then one of the neighbors get loud and then blow the sale?

        • Nila

          Tom W,

          I’m thankful you read my posting and found the information of value.

          If your 80 year old friend is so sold on condo ownership ask him/her what day would be good for them to sign the papers to buy it.

          This is your life, your future, your happiness, and your investment. Your gut feelings are telling you to get out. Listen to your intuition. It is giving your the right guidance.

          I will share a story with you here that is also an eye opener about condo ownership that results in inheritance. A 28 year old wife and mother of two young children inherited a condo in Florida when her grandmother passed. Shortly afterwards she received an assessment letter for $10,000 for a new roof. They wiped out their savings to pay it. Taking a closer look at the monthly cost of owning the condo; insurance, HOA fees, taxes, utilities, and maintenance, they decided it was best to rent it. After reading the CC&Rs she realized she must get permission from the HOA board to rent the unit. The board responded to her letter advising that HOA was denying her request because they were already at their maximum of 30% rentals. With that they decided to go ahead and sell grandma’s condo. It didn’t sell. Her husband lost his job. She was given my name to call for advice. Unfortunately, the only thing I could tell her was the truth. I never candy-coat my words. I had to tell her if she fails to pay the monthly dues, the HOA will charge her late fees at probably 18% interest, eventually have their attorney send her letters that will run into the thousands of dollars that she will be forced to pay, a lien will be placed on the condo, and the HOA board will foreclose and take it from her since it is mortgage-free. Before that get to that point they can also garnish her wages. With only one income in the family she cannot afford to have her wages garnished. She was crying saying they could barely buy groceries now. Sadly, grandma left her a ball and chain that until she can unload that place she is going to be suffering financially. Will the HOA board care if she is the breadwinner in her family with two small children? NO. Will the HOA board care if they garnish her wages? NO. Will the HOA board and their attorney be sad to foreclose and take her grandma’s condo from her? NO, they will be overjoyed to think they just stole a mortgage-free condo. And in many cases the HOA attorney and/or the HOA board members have been known to have their own real estate investments and they put this very property into their portfolios without and ounce of regret.

          Say nothing to your neighbors. Not a word. Stage your condo. Hire somebody to do it for you, if necessary. Rent a storage unit to store your stuff in that needs to be out of your condo for the photos and the showings. (FYI, most self storage places have discounts for the move-in…be sure to ask. And be sure to store at a place with an onsite manager living on it. You’ll pay more but it’s worth it. And secure the unit with a disc lock.) Once you have the place staged interview some Realtors that have been known to sell in your condo complex. Tell them you want to price it to sell. And do that. When it sells you can tell your neighbors it’s been lovely living by them but your needs in life have changed and you’re moving on. Wish them well and smile when you deposit that check in the bank after selling that condo. Then run like your hair is on fire! Find an apartment or duplex in a non-HOA controlled complex and enjoy the rest of your life. Every single day of it…HOA-FREE.

          P.S. Your neighbors may very well find out you are selling if they watch the websites for real estate listings. If they confront you, say you are making some changes in your life and then smile. Say NOTHING MORE.

          I would get the place listed by the 1st of February. I don’t know what part of the country you live in but most Realtors will tell you to have it listed by no later than March 1st. Start packing! Good Luck!

  46. Smithg651

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