The reality is that the average rental rate is going to be higher than the average mortgage on a similar property. Why? Because it has to be to cover the cost of the mortgage, taxes, repairs, profit, etc. No one is going to rent a property without covering their costs for long. It just doesn’t make economic sense. There’s no way I could rent a house comparable to mine for less money. There’s no way I could rent my house to someone else for less than my expenses on it without losing money. Obviously there may be an exception or two but they’re going to be exceptions, not the rule. I doubt anyone here would rent someone a house that they were not making enough money on to cover their expenses. Why would they? That’s a losing proposition.
5 Likes
Sure, if someone is downsizing they could probably rent for a cheaper price than they were paying on a mortgage. That’s the case for most people. They could also trade in their larger house for a smaller one and free up the cash difference.
I doubt they could rent a similar house for less than the price of a mortgage. Anyone renting a house to someone else is going to cover all their associated expenses on that house with the cost of rent or they’ll sell the house because their investment is costing them money in the long run.
We have no mortgage on our property. The value is 2/3 in the land… it is a very neat piece of dirt. Our taxes, insurance, and upkeep (sans major repairs which will be added to the cost basis when this week sell) is less than the average rent for a one-two bedroom apartment downtown. We did the math, and the happiness of being able to walk out of the back door and be surrounded by nature while still being within a walking distance of some restaurants, shopping, and entertainment is priceless. 
Certainly beats the whatever crypto returns have been so far. 
6 Likes
Thanks so much for the input on buying real estate as an investment for future/retirement. So true about the laws re: tenants (had forgotten about that). I live in an incredibly tenant-friendly state. My friends have purchased rental properties in a nearby state - that might explain why.
This talk of real estate bubble is frightening. I’m trying to get my family moving on selling a property asap. They want to spend time pefecting it. I’m scared the bubble will pop before we can sell.
The rental market doesn’t care what your expenses are. Rents are limited by what the market will bear, you can’t just arbitrarily raise the rent to cover your expenses and make a profit. If you’ve made a bad investment and are losing money, your only options are to absorb the losses until market rents go up, or sell.
You cannot globally say renting is cheaper than owning, or vice versa, this depends on the location. You can find both.
There are two other factors which making owning better than renting when you get old IMO:
-
Rents in general will continue to rise in most places, and your mortgage won’t (unless you have an adjustable rate mortgage I guess). You may not (hopefully won’t) have a mortgage at all when you retire. Selling your house to unlock the equity and renting for the rest of your life increases the risk that you run out of money. Yes there are expenses to owning that also get more expensive but this will not exceed the cost of renting.
-
You lose control over your own situation. Units get sold, foreclosed on, converted to condos, a rented condo’s owner may want it for themselves, the rent gets unaffordable, etc. You risk being put out of your home. And while you might be able to deal with this at age 60, imagine having to find a new home at 80, pack up, and move.
2 Likes
A new acquaintance recently suggested I sell my house and rent. No way! To rent, depending on the market is to be subject to inflation that is potentially unaffordable 20-30 years down the road. Plus property appreciation is one of the main vehicles for passing on inherited wealth, one that I missed out on, and sure don’t want my kids to miss. Many of my friends at a point when parents pass on are upgrading kitchens or buying vehicles, and I am realizing where that chunk of cash came from. I may spend all my other assets while alive, but I want that house to sit here appreciating. Yes, there may be repairs, but am set for the next 20 in terms of most big ticket items and there will be cash to deal with those in time.
Though some of this is location dependent. My aunt in small town Nebraska sold her beautiful old Victorian for less than $50,000 a few years back.
Location is also everything in terms of purchasing a rental property. The one I managed for 20 years for friends just sold, and it was a desirable enough location that attracted either young couples who moved on to a purchased home or older reliable folks who were careful with the place. My dad tried being a landlord for a few years in Arizona back a few decades and that was a mixed bag in terms of tenant ability to respect a property.
1 Like
Rents in our area are very high because we are near a university. We are paying the equivalent for our monthly mortgage and taxes for our 4000 sq ft house than my H was paying for his temporary 1 bedroom apartment.
No one here is suggesting that landlords can arbitrarily raise rents to cover expenses. So you are arguing that which isn’t being contested.
Discussion started when someone said if you rent you are not paying real estate taxes, insurance, repairs/maintenance, HOA fees, etc. Renters are not writing checks directly to cover these things. But its included in their rent. And if rents are not sufficient (at least on a long term basis) to cover the expenses of owning the unit/house being rented, your landlord won’t be around long absent special circumstances. Such as appreciation in value of unit/house is more than enough (including carrying costs of annual loses on rent) to cover the annual deficit. But in areas without sustained high increases in property values (most of the country) that will not likely be the case.
Someone who starts renting at 50 should expect to be renting through the life expectancies of roofs, air conditioners, furnances, appliances, carpets, etc. Likely multiple times. Many people who start renting at 65 will experience the same thing.
1 Like
My parents bought an extra lot beside their home in 1977. They never cease to remind me about their property tax bill every March.
In 2006, I was living in Asia and kept urging them to unload the lot.
Finally, in 2008, they listed the lot and followed the market down in price and finally pulled the listing.
In 2019, I kept telling them to list the lot. Of course, they finally got around to listing it in March 2020 as Covid took hold and the market temporarily crashed. Their realtor passed away and they pulled the listing just as the Fed induced market started to recover.
Fast forward to February this year. I again bugged them about listing the lot. FINALLY, this week, I am happy to say, they listed that dadgum lot. The realtor bragged she just sold two lots to out-of-staters sight unseen. Hopefully, this time the market will remain hot for a bit longer and they can unload the spare lot, so I don’t have to hear them complain about their property tax bill next March.
4 Likes
Good luck to your parents on selling the lot!
We sold my parents condo in the Fall for a crazy high price, the first day it was listed, with multiple offers. Our buyer paid cash and then went in and gutted the unit. I thought our realtor was smoking crack with what he suggested as the asking price but he was right.
2 Likes
“Location location location”.
Some people really love real estate - but someone that does it a long time and are successful are also willing to learn the ins and outs, risk and reward, and put in the ‘work’ which can be the decisions made along the way and/or the actual property management.
This current housing situation is an opportunity for people close to retirement and wanting to make decisions about their property/properties. H and I definitely are going to take advantage of it with proper planning and timing.
Purchaser of our primary residence or we definitely will need to find ‘proper appraiser’ - so purchaser can get the proper value for loan (this ‘problem’ would usually go to real estate agents and their knowledge base of mortgage companies/appraisals; but we have someone who wants to buy our home when we are ready to sell). We had a horrible appraiser along the way which didn’t affect our ‘deal’ - but also the guy was a jerk and way under-appraised our home by 6 figures and undervalued even by the much lesser ‘comparable houses’ selected by him (we only took out a 10 year mortgage for $100K at 2.5% interest rate and little closing costs with one of our credit unions; we didn’t ‘pick’ the appraiser) - it was during the 2008/2009 fiasco. I think because he was a lousy appraiser he didn’t want to be singled out with a ‘too high’ appraisal and was lowballing everything. IDK and he may be out of business. When we built our home, the construction loan appraiser told us we would get a good value appraisal in 5 or 6 years after “over building” - and this was in the 1990’s. Our home is in a really ideal location and a very nice neighborhood, and bigger/more expensive homes have been since built close by.
We were glad we had a cash offer on my parents’ condo because I would have been worried about the appraisal as there were no recent comps.
We did have a bad experience in our last home. It was a corporate relo with a buy out and they sent three appraisers - two of which weren’t from the area and had no idea of the ins and outs of our town. The comps they used were ridiculous. Our relator was really shocked but that’s what she was forced to listed the house. Thankfully the company reimbursed our loss but it would have been unnecessary if we had been able to use appraisers from our town and/or just listened to the realtor’s home valuation.
We just did a refi on our current home and the appraisal came in much higher than we expected. The appraiser was in the house for less than 10 minutes but he basically said great location, well maintained house, would sell for even more if it went on the market.
1 Like
@bloomfield88 it is a shame your parents hung on to the lot so long. Maybe they got a good price when they purchased; however the property taxes probably stripped gain - if the price of the property had been wisely invested instead…
However in growth areas, property can rise pretty nicely.
Appraisals for loans can be tricky. If there is reason to know the amount of the loan, there isn’t much incentive for value to be higher than necessary to obtain loan approval. And no real reason to push towards the higher end of a valuation range. Nothing in it for the appraiser.
1 Like
Appraisal fraud and collusion with appraisers was a big piece of the RE meltdown in 2008/2009 so reforms were put in to prevent it. So now you get an appraiser randomly picked out of a pool and they often don’t know the area well, and do a poor job picking comps.
It’s generally not too much of a problem when prices are stable, but when prices are rising rapidly the comps trail the market, and so deals with a high loan/value get jeopardized. It’s one reason there’s so many all-cash deals right now.
What boggles my mind is that in many deals around here, in addition to paying cash and offering well over asking ($100k over is not uncommon), buyers are waiving inspections.
3 Likes
Well….DH joins me in retirement next Friday. The financial planner says we have plenty and then some to meet our needs. I guess we will see in the next few months how true that is. The financial planner info includes a good amount of discretionary spending which could never happen or be deferred.
Stay tuned!
21 Likes
Not necessarily. Plenty of properties in VHCOL areas rent for much less than a new mortgage. (And that’s bcos some/many of them are paid off, i.e., no mortgage.) Silicon Valley, for example.
This thread is very long, so it has probably been asked, but does anyone have advice on obtaining health coverage for early retirement? That’s the biggest uncertainty for me when I consider how long I want to continue working. Suppose I want to match the coverage of a typical employer PPO including dependent coverage? How much is this going to cost me every year?
This is a good point. Even though the buyer pays for it, the appraiser works for the bank. And they always know the loan amount IME. The bank wants to get the deal done.
1 Like
Hot market here that isn’t a bubble. I do think it may cool a bit, but we have too many companies moving in from CA, and they think our housing prices are a bargain. A bff sold her house for cash for more than 20% over list with no appraisal by an older couple in the area. Why could they afford to do that? Because someone from CA came in and paid $1.3M cash for their old home with a pool. They wanted something a little smaller and easier to maintain. It’s like it’s play money over here.
Meanwhile, ds1 is closing on he and DIL’s first home today. The market isn’t as hot as ours, but this was their eighth offer so it has been an ordeal there, too. Yesterday’s walk-through was the first time laying their eyes on the house, but they refused to waive inspection. It worked out.
ETA: The lender waived the appraisal as the property clearly was going to exceed the loan amount with the large down payment.
3 Likes