rent vs buy

Roth Conversion and Rent vs Buy

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We start the show this weekend with a call from Mike in the midwest who is wondering if it makes sense to start converting some of his traditional IRA money into a Roth.

Next up was Alan from the Bay Area with a question that never gets old: should I rent or should I buy? That’s the decision facing Alan and his wife.

The recent trend continues as hour two is nothing but emails as we continue to dig out from an overflowing inbox.

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Rent vs Buy

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Even though I'm a proud real estate owner, I'm also a big believer that it often makes sense to rent instead of buy. That's the discussion on the latest call with David from Maryland.

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Financial Literacy + Rent vs Buy and Pensions

We started the show this week with Wayne from Connecticut who had a very interesting buyout question regarding his pension. Should he stick with the monthly payments or take a lump sum of more than 300k? 

Next up was David from Maryland with the age-old question of renting versus buying. Just 26, David and his wife have been renting a cozy apartment that's 350 square feet. Is it time to upgrade? 

You will often hear me say that before you worry about the financial future of your kids, you need to make sure you’re taking care of yourself first. But that doesn’t take you off the hook for discussing money with your kids.

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Think of it as another one of the talks...so now in addition to the sex talk, the drug and alcohol talk, we can add the money talk. All of these conversations must occur at every stage of your child’s development, with age-appropriate messaging that the kids can absorb.

To help with your effort, this week we’re talking to financial literacy guru Beth Kobliner, author of Make Your Kid A Money Genius (Even If You're Not) and Get a Financial Life: Personal Finance in Your Twenties and Thirties

I know there are a lot of you out there listening with kids or thinking about starting a family, wondering how to have such conversations:

  • How much debt should we take on for college?
  • Should I give my teen a debit or credit card?
  • My kid wants to move back home...should I charge rent?

Those are just some examples and there’s plenty more in our discussion. 

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Better Off BONUS call: Retirement Planning

You're maxing out your 401(k) plan. You own a rental property that generates more than 2k each month. You have 150k in cash that's just sitting in the bank. You're only 36 years old. What should you do next? How do you put that 150k to work and how should it be allocated? That's exactly why Monica from Brooklyn gave us a shout on the latest BONUS call. Great call!

“Better Off” is sponsored by Betterment.

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Better Off BONUS call 043 Rent vs Buy

This week on the BONUS call it's the age-old question about big city living...should I buy or keep on renting?

“Better Off” is sponsored by Betterment.

Have a finance related question? Email us here or call 855-411-JILL.

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Buying vs Renting: Which is Better?

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Three years into the national housing recovery, activity and price increases are moderating. While the unusually severe weather across the country has contributed to the recent weakness, the effects of last year’s rise in mortgage rates and the incremental increase in inventory have slowed things down. As a result, it is a perfect time to consider one of the age old questions that plagues would-be homeowners and equity rich near-retirees: Should I buy or rent? Let’s start with some post-housing crash statistics. According to the Census Bureau, homeownership peaked in 2004 at 69.2. Since then, the US homeownership rate has fallen for nine consecutive years, down to 65.2 at the end of last year. Obviously the housing boom and bust and subsequent recession reversed the trend. But something else happened over the past ten years: the “dream” of homeownership was called into question by every age group.

The under 35 set watched with dismay as their parents were crushed by the housing crisis. As a result, they are spooked by homeownership, with just 36.8 percent taking the plunge. Some of them have been forced to live with their parents longer rather than forming their own households, while others are content to live the carefree life of a renter.

Meanwhile, their parents, aged 55 to 64 saw their share of household ownership at its lowest point since recordkeeping began in 1976. Where did they go? Also to the rental market, according to Harvard University’s Joint Center for Housing Studies. The number of renter households aged 55-64 grew by 80 percent between 2002 and 2012, compared to 50 percent growth among all households. As the housing recovery continues, the ranks of pre-retiree and retiree renters may continue grow, because many will seek to finally recoup home equity that could be vital during their retirement years.

The calculation of renting versus owning, like most financial decisions, is an intensely personal one. The best lesson of the past ten years is that each potential homeowner must be financially prepared. I recommend putting down at least 20 percent and having an ample emergency reserve fund to pay for the routine maintenance a home requires.

If you have squirreled away the necessary funds, the next question is whether it is better for YOU to rent or buy. On a national level, monthly mortgage payments dipped below rent payments in mid-2008 after the housing meltdown, making owning cheaper than renting. But every market is different, which is why you need to run the numbers. You can use this NYT calculator, which requires you to do some market research in order to compare the cost of renting and owning in your area.

All of these calculations have a caveat: Even if it makes financial sense for you to rent today in certain locations, if inflation picks up in the future (which it probably will), so too will your rent. That may make the rent versus buy calculation tip in the other direction over time. On the other hand, the benefit of not being tied to a house can mean the ability to grab a better job in a different city. And maybe renting in retirement can free up much-needed liquidity, which may be more valuable to you than keeping the family home.

And then there is the emotional equation. There is a blissful peace of mind that renters have, because they never worry about the boiler imploding, the roof leaking or an appliance that stops working. All of those problems are easily solved with a quick call to a landlord, who has to deal with the hassle of repairs.

While renting can instill a sense of freedom, many homeowners will tell you about the great psychic benefits of owning their own homes, of nesting and creating a "home" rather than simply a place to hang your hat for a while. All of these factors are important variables in your decision to buy versus to rent.

Image by Flickr User http://www.pallspera.com