Rent or own?

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switters's picture
switters
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Rent or own?

From what I've read here and elsewhere it seems likely that real estate will bottom in the 2014-2016 range, so it would seem like that's the best time to buy a house and/or land.  

However, many of the long-term preparations (permaculture design of home and land, independent energy production, raising animals for eggs, milk & meat, etc.) one should be undertaking make a lot more sense when one actually owns the land/house.  That's the big problem I see with renting in this environment... why invest in all of these "systems" of sustainability when it's entirely possible that you could be forced to move?  

Our landlord just raised our rent by $600 in one month.  He didn't say this, but I'm virtually positive that he was in an interest only mortgage, and the term just came up.  Now he has to pay principal as well and that cost gets passed on to us.  I suspect that many renters will soon be in this situation, since I read somewhere that 70% of mortgages out there are ARMs.

So if we continue renting for the next five or six years, waiting for the housing market to bottom, that's five or six years of wasted time when it comes to making the preparations that will really matter in the long term, i.e. getting fruit and nut trees planted, ensuring independent access to water and power, building a support network with neighbors and the local community, etc.  

This is a question I've wanted to ask Chris, since I believe that he is currently renting.  To me it might make sense to spend a bit more and buy a house/land now, so I can get started on the long-term preparations.  

What do you think? 

Reuben Bailey's picture
Reuben Bailey
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Re: Rent or own?

switters,

This is exactly along the lines of my thinking when I was reading your post about where to park cash.  I don't know what Chris's recommendation would be, but some questions to ask yourself:

1. Are you looking at real estate as an investment to make money or as a place to live and be as secure/self sustaining as possible?

2. How much do you pay for rent compared to what you would pay to buy?

3. Can you get financing on reasonable terms?

4. Would you be comfortable with the amount that you would need to finance?

If you want to make improvements in terms of sustainable systems, I would say that you are right, it does not make sense to do this when you are renting.   As for trying to buy at the bottom of the market, I think that this is only a big concern if you are expecting to have to sell it again in the short to medium term and you are trying to make money at it, just like with precious metals.  $600/mo rise in the rent sounds very steep to me - for many rentals around here (northern central Maine) that would be doubling the rent.  I don't know where you are from, so that is probably a lower percentage change for your area.  

Good luck.

switters's picture
switters
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Re: Rent or own?
[quote=reubenmp3]

1. Are you looking at real estate as an investment to make money or as a place to live and be as secure/self sustaining as possible?[/quote]

I am definitely not looking to make money with real estate; I just want a secure place to build as sustainable future as possible. 

[quote]2. How much do you pay for rent compared to what you would pay to buy?[/quote]

Renting is getting increasingly expensive relative to owning where I live (SF Bay Area).  This is likely due to all of the foreclosures and the increased number of people who are renting instead of owning. Nevertheless, it is still cheaper than owning an equivalent home.

[quote]3. Can you get financing on reasonable terms?[/quote]

I'm not sure because I haven't looked into it yet, but my credit is excellent. 

[quote]4. Would you be comfortable with the amount that you would need to finance?[/quote]

This is the key question. As I am still in graduate school finishing my degree in acupuncture and herbalism, I am not really in a position to buy right at this moment.  I have the capital for a down payment, but I probably can't handle the monthly payment until home prices fall a bit more.  

[quote]If you want to make improvements in terms of sustainable systems, I would say that you are right, it does not make sense to do this when you are renting.   As for trying to buy at the bottom of the market, I think that this is only a big concern if you are expecting to have to sell it again in the short to medium term and you are trying to make money at it, just like with precious metals.[/quote]

Timing the market bottom isn't about making money on the investment for me.  It's about waiting until house prices fall to the point where I will feel comfortable with the monthly payment.  If I buy a house now for 400,000 that would cost me 300,000 (or less) in five years, that's a pretty big difference in the amount I would need to finance, and by extension my mortgage payment. 

[quote]$600/mo rise in the rent sounds very steep to me - for many rentals around here (northern central Maine) that would be doubling the rent.  I don't know where you are from, so that is probably a lower percentage change for your area.[/quote]

Unfortunately I live in one of the most expensive areas in the country - SF Bay Area.  Fortunately, this is not where I plan to buy a house.  When I finish with school in two years, we'll be moving to a small-to-medium size town somewhere that will definitely be cheaper. 

Thanks for your comment. 

joe2baba's picture
joe2baba
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Posts: 807
Re: Rent or own?

switters

it is like not buying a computer today because in a couple of years they will be faster with more features.

my opinion is 2015 may be too late. it takes time to do all the things necessary for a reasonable degree of self sufficiency.

you can find really good deals on land if you put your energy there.  i am a real estate broker and have seen people find some really good deals on rural land and houses. i dont know where you live but here in arkansas mini farms are very reasonably priced. one of the nice things about rural property is you just might find owner financing. good arable land will be even more valuable in the times to come so i dont see prices going down that much across the board. we may even see a lot of  people moving back to the land and driving prices up.

renting as you pointed out does not in any way give you security or equity. so yes you might find land cheaper in 2015 but you would have lost 6 years of equity and be 6 years further away from fruit and nut trees, community, sustainablity.

there are many communities forming now around permaculture. you can hook up with other like minded folks and pool resources. i was part of the back to the land movement in the 70's and have a great deal of experience with community.

it takes a lot of work but it can pay off. 

all the best

ps i suggest the south as your energy requirements will be less and close to a university town for the cultural benefits.

 

switters's picture
switters
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Re: Rent or own?

joe2baba,

Unfortunately I cannot buy right at this moment.  I'm finishing a degree in acupuncture and herbal medicine, which is part of my long-term plan of having a livelihood that is viable in a "post-carbon" world.  I have two years left.  Although renting is getting more expensive, it is still cheaper to rent where I live now than to buy.  Regardless, where I'm living now is not where I would want to buy - even if I could afford to do it.

So, I will be dealing with less than ideal circumstances, like so many others.  Overall though, things could be much worse. I'm mostly out of debt, I have savings in cash and PMs, I know how to grow food, my wife is studying permaculture design, we both have years of experience living in community, we have a strong network of friends and family that are aware of the "three Es" and actively responding.

In a perfect world, I'd already own a house in the place I want to be.  In the real world, I just have to do the best I can and keep my fingers crossed.  

 

 

gauntlett's picture
gauntlett
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Re: Rent or own?

I've been in the Rent versus Buy(for me to sell) debate for a bit.  I don't really want to move at the moment, but I have to look long-term.  Anyways one thing to consider that owning a home is a liability and not an asset.  The bank owns your house until it is paid off.  I like the idea of owner financing.  Check out John Schaub's <do a search on google> method of purchasing houses.  With renting there are many expenses you don't have to worry about, and you can always move.  True, this doesn't help in building a sustainable environment, but leaves you more flexible if need be and your capital isn't tied up in an illiquid asset.  During a recession you are going to want to have liquidity.

 

 My2Cents,

-T 

lundsta's picture
lundsta
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Posts: 89
Re: Rent or own?
I am in your same situation. Let me know if this sounds like a reasonable plan. We are renting right now, but are going to buy about 10 acres of vacant land. We are going to pay cash for the land and take 2 years to build the cabin. I really hope to pay as we go with no financing. At that point we can stop our lease and move in with no payments for the new property. I know alot of people are against renting, but this seems like it could work saving us alot of money. What do you think?
jgreco's picture
jgreco
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Re: Rent or own?

We live in DC and wouldn't move out of an urban area so I don't know anything about this "sustainability" thing, but I am definitely renting in this environment...

 

  1. Housing prices are going a lot lower in both real and nominal terms.  I'm definitely not going own a rapidly depreciating asset.  Those that bought last year are 10-20% underwater here, all the while spending more than double what it costs to rent.
  2. The economy is deteriorating.  Rent prices are fundamentally tied to the economy.  With more unemployment, rent will continue to decrease.  We've certainly see that this year, rent prices are stable to down throughout the region. 
  3. Deflation is here to stay.   The cost of the raw materials of a house are getting cheaper, not more expensive.  Why buy today when new homes can be built for less tomorrow.
If your landlord raised your rent by $600 then you were either getting a fantastic deal before or you should just move.  That's one of the drawbacks of being a renter...

 

 

 

 

gauntlett's picture
gauntlett
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Posts: 49
Re: Rent or own?

I'm with you that the recession will pull all prices down, but not necessarily deflation.  People won't be able to afford higher rents, and more people will be continually forced to sell or foreclose on their houses.  

 However, we are eventually going to have inflation.  I have no idea when, but the amount of money being created has to go somewhere.  Once banks are willing to lend again, which will take sometime, then we will see more inflation.  

 What does all this mean for housing?  How can a burst bubble be inflated?  I don't think it can.  Therefore long-term commodity prices will probably rise, but we aren't there yet.

 2moreOfmyCents 

switters's picture
switters
Status: Platinum Member (Offline)
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Posts: 744
Re: Rent or own?

[quote=lundsta]I am in your same situation. Let me know if this sounds like a reasonable plan. We are renting right now, but are going to buy about 10 acres of vacant land. We are going to pay cash for the land and take 2 years to build the cabin. I really hope to pay as we go with no financing. At that point we can stop our lease and move in with no payments for the new property. I know alot of people are against renting, but this seems like it could work saving us alot of money. What do you think?[/quote]

That certainly sounds like a reasonable plan to me.  Unfortunately, we don't currently have enough capital to buy a chunk of land outright and then build a house on it without financing.  But I don't think you can go wrong having a piece of land and a house that are both paid off!

lundsta's picture
lundsta
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Posts: 89
Re: Rent or own?

How much land where you wanting to purchase?

What kind of home are you looking to build?

 

 

Ray Hewitt's picture
Ray Hewitt
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Joined: Apr 5 2008
Posts: 458
Re: Rent or own?
 Once banks are willing to lend again, which will take sometime, then we will see more inflation. 
The Feds don't need no stinking banks. Don't think they'll stop at $2 deficits.  A war maybe? They'll think of something. 

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