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Renting vs Mortgage

There was a post here about this. And a lot of comments suggest that there's a lot of propaganda to make people believe renting is cheaper than owning a home, mainly because of “unforseen expenses”. So, here are some real world examples; I found rental listings on Trulia, pulled up tax and property records from the county, and found other data to put this together. First thing to keep in mind is when you rent, you're not building equity. You can rent a spot for 30 years at $804/month ($289k), and can never get a penny of that back, except maybe $804 in security deposit back. Mortgage a home for 30 years at $804/month and assuming the value is the same as the day you mortgaged, you have $160,000 in equity. If your home is worth $100,000 more, you have $206,000 in equity. Spend $35k to build an addition that…


There was a post here about this. And a lot of comments suggest that there's a lot of propaganda to make people believe renting is cheaper than owning a home, mainly because of “unforseen expenses”. So, here are some real world examples; I found rental listings on Trulia, pulled up tax and property records from the county, and found other data to put this together.

First thing to keep in mind is when you rent, you're not building equity. You can rent a spot for 30 years at $804/month ($289k), and can never get a penny of that back, except maybe $804 in security deposit back.

Mortgage a home for 30 years at $804/month and assuming the value is the same as the day you mortgaged, you have $160,000 in equity. If your home is worth $100,000 more, you have $206,000 in equity. Spend $35k to build an addition that adds $50k in value, your equity is now $221,000.

It's just like leasing a car… you pay monthly to use it, but when it's time to move onto a new car, you have no trade-in value. If anything, you'll get hit with a few additional unforeseen expenses for going over in miles or causing wear and tear.

Our mortgage is just about $900/month. We fortunately bought it from a bank in 2015 for $108,000 (just below estimated value). 2 beds, 1.75 bath. This includes property taxes and insurance (the largest unforeseen expenses–part of our mortgage payment goes to an escrow account to pay these things). It's located in one of the hottest housing markets in Washington State. The value is now estimated at $266,800. Not including the principle we've paid the bank, that's $158,800 equity in 7 years. Considering our housing market is so insane, we've received unsolicited written offers to buy our home for $330,000, sight unseen. We don't take these offers because we don't want our home to be used by investors; we plan to sell our home for at or below the actual value and only to someone who needs a home in that budget. Plus, this state is my lifelong home, and even with max profit, we wouldn't be able to afford anything else (more on this later). Also, when we bought our home, it was the only option we could afford; even then most rentals were about 1200/month, for houses and apartments.

Moving on from equity… what about unforeseen expenses? Depending on the source, this includes utilities, general repairs, maintenance, and replacements on anything including the lawn/yard, appliances, roof, decorations, furniture and usually even includes the insurance and taxes. Also depending on where you live (weather plays a huge part), how your home was built, how old and how big it is, the total can vary. Most sources will say you should budget around $1 per square foot per year. So, a 2,500sf home should save $2,500/yr or about $209/month. I remember reading actual stats from the government which said the average in the US (including everything mentioned above) was $9,000/yr or $750/month (I can't find this info again right now). Keep in mind, this is an average, not median, and as I'll talk more about later, the average home size is now 2,400sf.

Note that I will not be accounting for utilities (electric, gas, water, sewage, solid waste removal, internet) because at least around here utilities are not included for rental homes, therefore in terms of comparing the cost of rent to mortgage, it's a moot point.

Our house is 990sf, and I estimate we spend around $100/month for regular maintenance, plus we've spent about $5,000 over 7 years on replacement or new appliances, replumbing and some rewiring. We installed a new dishwasher, but our new furnace and water heater are still in the boxes, waiting for the old ones to fail or until we do a voluntary remodel in the next few years. That's an annual average of $74/month. If we include money spent on tools ranging from drills to our lawnmower, we'd still be waaaaay off from even getting to $200/month.

So… our house costs us about $1,000/month all-in (utilities not included, like rentals around here which I will compare to in a moment). If we go with the recommended savings, it's $1,100/month. If we go with what I remember being the us average, it's $1,650/month (but this is obviously way too high for our small home and property considering the average size of new homes between 1971 and now is 1,500-2,400 sf, and again, we're at 990sf).

Looking at houses for rent near me that are 600-1,000sf:

The cheapest is $1,395/month for 2 beds, 1 bath, 962sf. The pictures indicate the landlord hasn't been paying for unforeseen expenses; the appliances, cabinets, fixtures, hardware, carpets, doors, wood panelling… it's all from the late 70s to early 80s. It's also on the same lot of another, larger home. This property has been privately owned since before 1997 (owner lives in another city).

The next cheapest is $1,800/month for 2 beds, 1 bath, 792sf. It has contemporary appliances and other updates, but it's actually in another city to the south where things are cheaper because commute distances, job opportunities, and other factors. It is just a few blocks from a lake. The property is owned by TBone LLC and was purchased in 2005 for just $85,000.

Houses in a range of 0-1200sf:

The most expensive is $2,300/month for 2 beds, 1 bath, 542sf. There are no photos of the interior, but it's a recently built Detached Additional Dwelling Unit (DADU), not even truly a single family home with its own lot. It's in the north end of our city, where things are more expensive. The property sold from private owners to Tac Build LLC this month for $600,000, the estimated value is $378,400.

There are only two single-family home rentals available in our zipcode. They're almost identical, just a few blocks apart, 3 bed, 1 bath, and around 1,150sf; $2,147 and $1,895. Other than new floors, both are very early 90s. The more expensive one allows pets and is 100sf smaller. The more expensive pet friendly home is owned by a private couple who've owned it since before 1997. The other is owned by Duo Northwest and was purchased from a disabled/senior in October '19 for $162,000.

So, for the most part… rentals are owned by people who've owned them for a long time and are charging rental rates waaaaaaaaay above what it would cost to own. And in general, landlords don't handle most of the things considered a part of unforeseen expenses, the very thing they use to deter you from owning a home while also using it as a crap excuse to charge more. Keep in mind, renters pay security deposits which is frequently used by the landlord to cover many unforeseen expenses.

The best example here is the $1,800 rental owned by TBone LLC. Rates were 5.63-6.33% in 2005, so assuming TBone LLC has a typical 30 year mortgage on this property that a private homeowner who resides there would have, that's $490-528/month. In reality, TBone LLC probably paid cash for the home and doesn't have interest to pay, making that $236/month for 30 years. In 2021, taxes due on the property were $1,196.67, or almost exactly $100/month (this is as high as the tax has ever been). Average insurance on a rental is $1,800/year or $150/month. That's a maximum total of $778/month for mortgage, taxes, and insurance. Now, we need to account for those other unforeseen expenses. If we go with the average I recalled earlier (which again, isn't a very likely figure as itcs a national average as well as includes everything including the taxes and insurance we already calculated for, as well as things the renter will be paying like utilities and furniture, and for most rentals around us lawn care as well), that's another $750/month, bring the total to $1,528/month or $272/month less than what TBone LLC is asking for rent. If we go with the more reasonable $1/sf/yr, that's $792/year or just $66/month, which brings the total to $844/month or $956/month less than the rent. Let's be fair and split the unforeseen expenses, that's $614/month less than rent.

So there's at least one example where a landlord will likely profit at least 52-113% on a home. The $9000/yr figure would be 17%, but as already discussed this number is waaaaay ridiculously off for this case, so we're averaging that with the $1/sf/yr figure at 52%. And again, this is assuming the landlord has a mortgage and is paying interest on it. Which brings me to…

This is all before break-even! If landlord owns the home in full and/or has already recouped the initial purchase price, these numbers jump as high as $800-1,484 profit per month, or 275-470% profit. (Again, 80% if we go with the $9,000 figure, but I've averaged it once more).

Meanwhile, because landlords keep buying everything up to rent out for twisted profits, there's no homes available to buy (my state literally has a deficit of homes right now), this doesn't change if you're a first time homebuyer or not, even we can't sell our home and afford to buy or rent something else in this state, my home of 30 years. This screws with supply and demand, allowing landlords to charge pretty much whatever they feel like. Also meanwhile, houses assessed at $378,400 will be bought by investors for $600,000 to rent out, thus even further worsening our housing crisis and contributing significantly to the skyrocketing homelessness, which in turn contributes to increased mental health issues, drug abuse and crime.

While I was researching all this, especially when I was trying to find the unforeseen expenses government stat, I stumbled across an article titled “Dealing with Unexpected Expenses” by The Federal Reserve. 1 in 4 adults face challenges paying their bills. 36% of renters facing those challenges (4% of all adults in the us, and 16% of all renters) said they'd have nowhere to live if they couldn't pay their rent. Considering 24% of adults say an unforeseen expense of just $400 would financially ruin them (which in turn would result in not being able to pay rent, and therefore result in homelessness) it's absolutely disgusting that landlords are profiting off of housing at a potential return on investment as high as 470%/month.

470%/month may not be typical, but the point is landlords make profits off of human necessity at the expense of others' financial and mental well-being (don't get me started on the proven mental health benefits of owning your own, private space) and the idea that renting is somehow better for you financially is laughable in most circumstances these days. There's a reason why landlords do what they do: they make profits, good profits. They don't do it for charity or out of some other altruistic calling to put roofs over heads.

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