When the question of whether one should buy or rent a home comes up, the usual answer is “Run the numbers.” A good tool for running the numbers is the Buy-or-Rent Calculator from The New York Times.
This calculator thoroughly takes into account the price of the home, how long you’ll stay in the home, mortgage rate, down payment, home price growth rate, rent growth rate, investment return, inflation, property tax, the tax rate, closing costs, maintenance costs, insurance, utilities, and HOA fees. It calculates a rent-equivalent number. If you can rent a similar home for less than this number, then renting is better.
The Daily podcast from The New York Times put out this episode recently: Should You Rent or Buy? The New Math. The gist of it is that the double-whammy of higher home prices and higher mortgage rates has made renting more favorable than buying. Here’s a shorter interview with the same author on PBS NewsHour:
Most people saying that renting is better than buying aren’t renters themselves. They only talk about renting in the abstract when they don’t have real-world experience in renting these days. I rented in the last four years before I became a homeowner again last month (I owned a home for 18 years before renting). My experience from four years of renting tells me that a buy-or-rent calculator should be the last step you take when you explore whether you should buy or rent, not the first step. Only running the numbers misses a big part of the picture in buying versus renting.
Here are 9 things I learned in real life that a buy-or-rent calculator doesn’t tell you.
- 1. You have fewer choices when you rent.
- 2. Just because you see a listing doesn’t mean you get to rent it.
- 3. Just because you have pristine financials and a great credit score doesn’t mean you’ll get the rental.
- 4. Homes for rent are in general of lower quality than homes for sale.
- 5. You have to ask for permission in how you live.
- 6. Renting doesn’t mean maintenance-free.
- 7. You don’t necessarily get to renew even if you’re a good tenant.
- 8. Your rent can increase a lot on renewal.
- 9. Renting is less flexible than you think.
1. You have fewer choices when you rent.
This was the first surprise when I tried to rent. It may be different if you’re renting an apartment but I can only comment on renting versus buying single-family houses and townhouses because I was only in that world. You don’t need a calculator to tell you that renting a one-bedroom apartment costs less than buying a three-bedroom house.
These two maps from Zillow show homes listed for rent (excluding apartments) and homes listed for sale in my previous zip code in 2021:
The two maps below show homes listed for rent and homes listed for sale in my current zip code in 2024:
Different times, different places, same story. Before considering prices, sizes, or desirability, you start with fewer choices when you try to rent.
Look at the map from Zillow in both ways for your area. Is it any different?
2. Just because you see a listing doesn’t mean you get to rent it.
Renting a home isn’t like buying something from a store. Just because you see a listing and you’re OK with the asking rent doesn’t mean you get to rent it. You can only apply to rent it. The owner decides whether to rent it to you. Rightly or wrongly, the owner can insert personal preferences in picking the tenant.
Owners aren’t supposed to discriminate but as long as they don’t say it aloud, you can’t do anything when an owner discriminates against you because you’re young or old, male or female, single or married, because you have kids or dogs, or for a multitude of other reasons.
When I was looking for rentals in another city, someone refused to show me the home before a local person saw it first even though I was willing to drive over to see it. Maybe she was burned by an out-of-town renter before. I was guilty by association.
There’s less prejudice and discrimination when you try to buy a home because buying is a one-time transaction. The seller is gone after you buy it. Renting is an ongoing relationship between the owner and the tenant. The owner cares deeply about what you do after you rent it. If the owner suspects you’ll do something he or she doesn’t like because you’re young or old, male or female, single or married, you have kids or dogs, etc., etc., the owner will choose to rent it to someone else.
3. Just because you have pristine financials and a great credit score doesn’t mean you’ll get the rental.
Even if the owner doesn’t discriminate, he or she only needs a good tenant. The owner isn’t running a contest to see who has the strongest financials.
I once applied for a rental and the owner didn’t even look at my application. He said he received 30 applications in a few hours, found one acceptable after reading several, and discarded the rest. Continuing to review all 30 applications would’ve been a waste of his time.
After learning that lesson, I applied for the next rental minutes after Zillow sent me the alert of a new listing. I paid the $50 non-refundable application fee with complete documentation of my financials right away. That was how I got the rental.
When I gave my notice to vacate this rental two years later, the property manager listed it for rent on Zillow on a Saturday evening. By the following Monday, they already lined up 8 showings for Tuesday afternoon. I received another slew of texts on Tuesday morning saying that they canceled 7 out of the 8 showings because one of the 8 signed the lease already without seeing the rental.
The other 7 renters may have stronger financials than the one who signed but they still lost out because they weren’t aggressive enough.
The buy-or-rent calculator showing that it’s better to rent is irrelevant if you don’t actually get the opportunity to rent.
4. Homes for rent are in general of lower quality than homes for sale.
The best ROI in rentals comes from renting cheap homes for not-as-cheap rents. Renters as a whole have lower incomes than buyers. These factors make it rare to see good-quality homes for rent. Good-quality homes for rent are also taken away by the rise of Airbnb and VRBO. Most of the remaining homes offered as long-term rentals don’t look that great.
A home also deteriorates over time after it becomes a rental. You’ve heard of the saying that nobody washes a rental car. The owner doesn’t keep it up because renters don’t have an incentive to take good care of it. Some homes for sale specifically advertise that they have never been a rental.
The owner of my last rental home didn’t do much maintenance when I rented it. When the dishwasher broke, the owner replaced it with a $300 dishwasher, which was the cheapest you could find at The Home Depot. The dishwasher worked but I bet she wouldn’t have chosen that one if the home weren’t a rental. Doing much beyond the bare minimum isn’t worth the investment to the owner, which is understandable but this contributes to the lower quality of rentals.
5. You have to ask for permission in how you live.
You acted fast and you got the rental. You don’t mind its lower quality. You just pay the rent and live your life, right?
Remember that buying is a transaction and renting is a relationship. The relationship means you need permission from the owner in how you live when you rent.
Here are some terms of the lease for my last rental:
Occupancy by guests remaining over three consecutive days or more than five days in any calendar quarter will be considered to be a violation of this provision unless prior written consent is given by Owner. Owner may restrict any guest for any or no reason.
Resident is required to get approval for any companion or service animal PRIOR to the animal coming onto the Premises. Failure to obtain prior approval is a significant violation of this agreement which shall allow for immediate eviction.
Your sister is coming to visit you and she has a dog? She doesn’t have a dog but you want her to stay with you for 4 days? Ask for approval from the owner, please.
Reject these terms and negotiate? Forget about it. See 1 through 3.
6. Renting doesn’t mean maintenance-free.
If you think all maintenance is the owner’s responsibility when you rent, think again. From my last lease:
Resident shall be responsible to maintain the Premises including the exterior. It shall be the specific responsibility of Resident to maintain the sprinkling system and to care for and maintain the lawn and landscaping. This shall include but is not limited to; weeding, watering, mowing, edging, fertilizing, and anything else necessary to maintain the landscaping. In the event Resident fails to maintain the lawn and landscaping, Owner in its sole discretion may cause such to be maintained and shall be entitled to reimbursement from Resident for the costs incurred in such maintenance. Tenant shall be responsible for normal daily maintenance of the Premises and to keep the Premises clean and orderly. Other such maintenance may be assigned to Resident by Owner through the Rules and Regulations or by other written agreement. All costs of such maintenance shall be the responsibility of Residents.
Yes, you can hire lawn service but it’s still your responsibility to maintain the lawn and landscaping.
7. You don’t necessarily get to renew even if you’re a good tenant.
A typical lease term is one year. If the buy-or-rent calculator continues to say it’s better to rent and you’d like to continue, you still don’t necessarily get to renew the lease for another year.
Renting is a relationship. The other party in the relationship has to agree to continue the relationship. The owner may decide to sell, turn it into a short-term rental, rent it to a family member or a friend, or make it his or her primary or secondary home. It doesn’t matter how good a tenant you are.
The owner of our first rental notified us in the middle of the year that he wouldn’t renew the lease because he wanted to move into it. He was kind enough to give us notice six months before the lease expiration and he waived the early termination charge if we moved out sooner. Had he strictly gone by the terms of the lease, he only needed to give us notice 30 days before the end of the lease term and we would’ve had to scramble to find a new place in 30 days.
A buy-or-rent calculator implicitly assumes that you can always renew or you can always find another equivalent rental. The real world doesn’t work like that.
8. Your rent can increase a lot on renewal.
The New York Times buy-or-rent calculator has an input for the rent growth rate. It defaults to 2.5% per year. If the owner offers you to renew the lease, there’s no limit to how much the rent can increase absent local rent control laws.
The renewal I was offered in the second year of my last rental went up by 25%, not 2.5%. The owner threw me a bone and lowered it to 23% when I begged for mercy. If I didn’t accept the renewal, my only choice was to find another place in 30 days.
Hiring movers would’ve eaten up a large part of any savings assuming I was able to get a less expensive rental in 30 days. That also doesn’t count the hassle of packing, unpacking, and disruptions to life. I relented and renewed for a 23% increase.
If you move every time you have an unreasonable rent increase, you’ll be tired of it very soon. The unreasonable rent increase will look quite reasonable when your family asks you why you’re moving again. It’s rational for the owner to charge a premium for renewals because you get to avoid moving when you renew.
After we vacated the rental, it was listed for rent at a much lower rent than we were paying. New tenants don’t pay the renewal premium because they’re moving anyway.
9. Renting is less flexible than you think.
Flexibility is touted as a major benefit of renting. If something comes up in your life, you can just leave. It’s true when it happens close to the time of lease expiration but the owner isn’t obligated to let you out of the lease at other times. You don’t get to break the lease for only one extra month of rent.
From my last lease again:
If Resident vacates prior to the end of the initial term, all future rents under this Agreement shall accelerate and become immediately due.
If you must move two months into a one-year lease, paying rent for another 10 months isn’t much less than paying the transaction cost of selling a home. You don’t have the right to sub-lease when you rent.
Some leases automatically become month-to-month after one year. That’s not always the case. If the owner only wants 12-month renewals, moving is your only choice even though you know you’ll have to move again in two months.
On the other hand, if you chance upon a good-quality rental with a nice owner who doesn’t maximize their economic interest, you’re as locked in as someone who bought a home. You hesitate to let go of this great rental even if your needs changed because you suspect your next rental won’t be this good. Your flexibility goes out of the window when you’re afraid to exercise it.
Buying versus renting is much more about the price but a buy-or-rent calculator only tells you about the price. Consider these other factors before you jump into the buy-or-rent calculator.
Did I just have bad luck and run into unreasonable rentals? I doubt it. Basic economics says that lower-priced products see a higher demand. The higher demand creeps into non-price factors such as low availability, discrimination by some owners because they can, a large number of renters chasing after a small number of rentals, lower quality, and onerous lease terms.
A buy-or-rent calculator implicitly assumes a fantasy world in which rentals of equal quality to homes for sale are abundantly available, you get to rent a home of your choice as long as your financials qualify, you can renew for as long as you want for a reasonable increase in rent, and the lease terms are flexible and accommodating to you. If that’s the case in your area, great, run the numbers using the buy-or-rent calculator. Otherwise, not so fast.
Renting by choice looks good on paper but it gets messy in real life. Renting isn’t like buying regardless of the price. Buying is a transaction. Renting is a relationship. I’m happy to be a homeowner again and out of my renting relationship.
Buying may be more expensive (or it may not be) but price isn’t everything. According to a report by Pew Research Center, 90% of people in the top income quartile and 90% of people in the top half in net worth own their homes. Close to 40% of all homes in the U.S. don’t have a mortgage. People who own their homes free-and-clear don’t sell their homes to become renters when the buy-or-rent calculator says it’s better to rent because they know to look beyond the numbers.
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