Renting Vs. Owning Your Home

Red hot topic over at Millionaire Mommy Next Door’s. (Millionaire Mommy’s blog was hacked and the post is no longer available, but here is a comparable one in which she examines renting vs. owning at her new site).

My take on this discussion. I have rented and I have owned homes. I have been inherently happier as a homeowner. I can’t imagine EVER renting again, and hope I never have to rent again.

My earliest memory is in the home my parents were buying in 1968.  My dad had been in the Navy, and they were able to buy a home.  My father decided he couldn’t handle being a dad, so he left my pregnant mother, myself and my younger sister. My mother, being a stay at home mother was unable to make the mortgage payments so we lost our home, and consequently had to move. Luckily she found a job, but it was barely enough to make ends meet. I assume my mom got behind on the rent and our landlord’s solution for getting us to move out was to remove our front door. A single woman with three young daughters under the age of six, during the winter and the front door is gone. If that wasn’t bad enough, we lived close to a bar and one drunk had already found his way to our small home one night and scared us all half to death, banging on the windows and doors trying to get into the house. My mother was evicted a lot over the years when I was a child. It seemed we were constantly moving. I hate moving. I had to transfer to a new school every year or two.

My sister qualifies for renting through HUD and every year has to have a walk through visit which is torturous for her and her family. The good thing about it on one hand is that her landlord is forced to keep the place up, but he does the very least he can. For example, he agreed to allow my sister to pull out the carpet and replace with vinyl tile, but he had to pick the tile. He picked the ugliest, cheapest tile he could find. For over one year the air conditioning wasn’t working properly because it needed to be replaced. We live in the hot desert and it’s not an option to NOT use the air conditioning. The air conditioning unit would run continually for most of the day, and the home would barely cool to 90°F. This continual running of the unit of course meant my sister’s electricity bill was incredibly enormous. The landlord kept putting her off, saying she was doing something wrong or had not changed the filters and broken the unit. When it came time for the HUD inspection, my sister was afraid she would be evicted, since she was complaining to HUD about the air conditioning unit running so poorly. By law, the landlord did not have to replace the unit since it was still barely working. By rights, he could have evicted my sister and gotten a new HUD tenant in, one that maybe wouldn’t complain about the air conditioning unit not working. Luckily for my sister, the landlord chose to replace the unit. But she went through a lot of agony and fear and stress and discomfort for months waiting to find out what would happen, not to mention horrendously high electricity bills!

I rented a small apartment for a while, part of a duplex. The landlord was a slumlord who didn’t bother me at all.  I’m sure this is because I paid the rent faithfully. She allowed me to make small upgrades to the place, for example she paid for me to replace the tile (I did the work and she paid for the least expensive but pretty 12″x12″ tiles I could find). Now my next door neighbor didn’t do anything to her place, so her side was in shambles by the time she moved out. She had a leak in the shower that wrecked out the entire bathroom because she never did anything about it. As far as I know, she didn’t tell the landlord about it.

That landlord sold to a man. He also allowed me to make little upgrades. But then he sold to another man, who decided to evict us and turn the duplex into one home. I hate the insecurity of the homeowner deciding to just up and sell the home and I’d have to suddenly move.

I hated the whole business of renting. The landlord could come in at anytime. I think the laws have changed, and they have to give a 24 hour notice. It doesn’t help that I tend to be a clutterbug.  That makes it sheer hell on earth to think the landlord might want to come in at a 24 hour notice.

After that I wanted to buy my own home.  Being that I was on a very limited income, and on government subsidies at the time, I couldn’t afford much.  I’d lived in a trailer in my twenties, and had no qualms about living in a trailer/mobile home park.  I found a beautiful place that had been remodeled recently. I asked my step-grandparents for help to buy the place, as I could not qualify for the loan on my own. They were gracious enough to help me, and loaned me the $10,000 that I needed.  I wrote up a contract and had it notarized.  They hadn’t asked for a contract, and they didn’t want interest, but I felt it was the right thing to do, and we agreed to a rate of 3%. I paid them $150 each month, without fail, until it was paid in full.

It was a big relief knowing that the mobile home property owners couldn’t come into our home, but they did have total control over the yard and outside areas. It was like living in prison (hah! or having an HOA). I was constantly scared and worried that the neighbor would report us (they expected the yard that we were forced to share to be in perfect order at any moment in time). He did report us several times, for minor infractions such as one of our bikes left in the middle of the yard.  After a few years of living like this, I was irrationally angry at the neighbor at all times. I kind of feel sorry for him looking back on it, because any time he would approach me, I’d be ready to fight and I’m totally not that kind of person.

When I moved into the mobile home park, I was told by the owner of the mobile home that the entire yard was mine. After all, every other spot in the park worked that way. Your yard was from your front door side to the neighbor’s back door side. When the place was sold, the new mobile home park owners decided to give my next door neighbor half of the big yard. He never bothered to help me water it, and we did have to pay for water. He also never maintained the lawn. I spent hours on my hands and knees removing by hand burr and sticker weeds. I spent hours mowing the lawn, which would always cause my allergies to act up for days after.

The lady I bought the mobile home from had told me that the rental space had only gone up one in all the years she’d lived there, and then only $3 per month.  The rental agreement contained about twenty rules.  They had also recently converted the park from a seniors only to a family park.  So right off the bat, my children and I were unwelcome. Everyone treated us with disdain. We began staying indoors as much as possible.

About one year after we moved into the park, it was sold to  some invisible entity that lived in another city. Suddenly the “rule” book was twenty pages and the space rent was being raised every single year by $20+ a month. It was constant torture living there.

We started looking for someplace else to live.  We looked in the big city, but I was only working three days a week. We couldn’t afford much more than $50K and fixer-uppers were going for $120K and more.  We initially started looking for some land to move the mobile home onto, but discovered that was not an option since it was too old!  Eventually we found some land, with a manufactured home already on it.  Our 3.5 acres, fully fenced with a CAVCO (they say it’s the “Cadillac” of manufactured homes) manufactured home cost us $53K. Our property is now worth $200K. Our yearly taxes are $600. Our yearly insurance is $600.

This is the calculator Millionaire Mommy used to run some numbers, but I don’t understand how it works. I put in these numbers:

And here is my resulting report:

Financial Calculators
Rent vs. Buy
Your home purchase breaks even after 0.4 years.

This is based on your home’s equity minus a 7.00% sales commission paid to brokers or real estate agents when you sell your home. It also assumes your home will appreciate at 3.00% per year and you have an income tax rate of 25.00%. If you cannot remain in your home for at least 0.4 years you should consider continuing to rent.

We calculated your break even point by examining how long it would take to create enough equity in your home to exceed the value of investing your cash on hand. We also accounted for differences in your monthly rent and house payments. If your rent payment is less than your net house payment, we add that monthly savings to your investment. If your house payment is less than your rent payment we subtract that amount from your investment. You may notice that on the schedule at the bottom of this report the investment value can be reported as negative. This happens if your house payment is significantly lower than your rent payment. It illustrates that if you continue to rent the extra cost of renting would, in effect, use up your cash on hand.

Loan Information

Your total monthly payment was calculated as $672.96. Your down payment was calculated as $470 and you had a home price of $53,000. This is for a 30 year mortgage at 7.000% in the amount of $52,530. Total closing costs for this loan are estimated at $630.36.

Your current monthly rent is $1,300. The expected inflation rate of 3.10% annually was used to estimate future rent and property taxes. The rate of return use for investments was 7.00% per year after taxes.

Your $672.96 monthly payment consists of:
Principal and interest $349.49
PMI $21.89
Taxes $53.00
Insurance $48.58
Association dues & maintenance $200.00 [We have no association dues but MMND says she put in a percentage of the yearly cost of the home. I figured to play it safe, I’d put in $200 for monthly remodeling although we aren’t doing anything like that currently. We would like to take out the carpet and put in tile, as it is very dusty out here and we are constantly having to clean the carpet.]

Closing costs of $630.36 consists of:
Amount paid of points $0.00
Origination fee $630
Other closing costs $0

To avoid PMI payments, a $10,600 down payment is required. This equals 20% of your home’s purchase price. The total amount of cash required for a 20% down payment plus closing costs would be $11,230.

I’m not sure what Millionaire Mommy Next Door would say, but I think we’re okay for now with owning. Well, I guess we’ll HAVE to be okay, since I have such strong feelings about NOT renting. 😉

My two cents to add to the ongoing debate.

Yours Truly,

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