Is homeownership truly better than renting?

[IronWing]

As others have stated, it really comes down to life style choices and ability to pay. You can get by cheaply doing either if you are willing to settle for less apartment or less house.

Dealing with slumlords sucks and there are very few landlords who don't eventually reveal their slumlord hearts. However, renting does afford mobility that can't be matched in ownership.

We chose to buy because where we are now is where we think we'll stay for decades. We also didn't buy more house than we could afford (roughly 2.5 x gross income at the time of purchase).

Folks have mentioned doing the math and that is something that can really put the cost of ownership and and the cost of getting to ownership in focus. Mortgage calculators abound and are great for seeing how pre-paying principal, particularly early in the mortgage, can drastically reduce the interest cost of a mortgage and shorten the payback period. There is an opportunity cost for doing so but we found it well worth doing.

 

[TruePaige]

I've taken six months off and traveled cross country and I was home owner. And I've sold houses making $100k+ in profits after owning them for only a couple of years.

You plan on working when you're asia and pay for housing yourself. A homeowner might have their company pay for overseas housing or sublet their house.

Sounds like you're not doing it right.

A renter could do this as well and then ALL his money from housing expenses is freed up. He could even take physical delivery of Asian goods with the money and resell them back in America for major $$$.

 

[TruePaige]

As others have stated, it really comes down to life style choices and ability to pay. You can get by cheaply doing either if you are willing to settle for less apartment or less house.

Dealing with slumlords sucks and there are very few landlords who don't eventually reveal their slumlord hearts. However, renting does afford mobility that can't be matched in ownership.

We chose to buy because where we are now is where we think we'll stay for decades. We also didn't buy more house than we could afford (roughly 2.5 x gross income at the time of purchase).

Folks have mentioned doing the math and that is something that can really put the cost of ownership and and the cost of getting to ownership in focus. Mortgage calculators abound and are great for seeing how pre-paying principal, particularly early in the mortgage, can drastically reduce the interest cost of a mortgage and shorten the payback period. There is an opportunity cost for doing so but we found it well worth doing.

Those are the keys! Good post.

Do the math, if after interest and principal + tax + upkeep alotments you find the amount of space and property you need for a reasonable cost compared to renting (even factor in a premium for personal want if that is what you want) it is completely worth it.

If the money isn't to your advantage and the want for home ownership isn't a passion that makes it worth more than the monetary loss (if you have a monetary loss after math instead of a gain based on historical and projected data) then don't do it in that case.

 

[Bignate603]

I was listening to NPR yesterday and this guy was talking about this very topic.

He said that historically homes have a 1% per year return on investment. If you took that money and put it in a good investment vehicle you can do MUCH better than home ownership.

A caller tried to assert that renting was throwing money away but the guy went into a discussion about how when you own a home you have to pay not only the mortage but upkeep and taxes. Stuff that renters do not have to worry about.

When you're renting you're paying for the upkeep and taxes too, just indirectly. You're also paying for all the overhead of all the office staff and advertising, shared things you don't use (pool comes to mind), and you receive no benefit for being really careful about taking care of your place. You still end up paying for the wear and tear of everyone else, even if you cause significantly less problems.

When you factor in the tax benefits of a mortgage, the cost savings you can get because now you can do the work yourself, and the fact that you don't have to pay for things you don't use (no pool, no advertising, no paying for other people's wear and tear) you can reap significant benefits if you are smart about which house you pick.

 

[DaWhim]

I've taken six months off and traveled cross country and I was home owner. And I've sold houses making $100k+ in profits after owning them for only a couple of years.

You plan on working when you're asia and pay for housing yourself. A homeowner might have their company pay for overseas housing or sublet their house.

Sounds like you're not doing it right.

hey, you have made money selling the house, more power to you. if you sell your house today, would you still make that $100k profit? If you are located in the hardest hit area like NV, FL, CA, you would probably have all your equity wiped out.

this is really my view of buying a house. "It is a one-way, highly leveraged, completely unhedged bet on a single asset class. From a purely financial point of view, it makes no sense at all to incentivize people to do this, to hold their wealth in this form."

What I am going to do in asia is irrelevant. I don't even know it yet. If I feel like working, I will. There is another guy in this forum that went to travel for about a year around the world with budget less than $20k. I should have more than him to play with when I am done with this job.

age is relevant to my replies. how many 25y/o will have a company that will move him/her across to another country with everything paid for? and in this economy? get real...

 

[Slew Foot]

When you're renting you're paying for the upkeep and taxes too, just indirectly. You're also paying for all the overhead of all the office staff and advertising, shared things you don't use (pool comes to mind), and you receive no benefit for being really careful about taking care of your place. You still end up paying for the wear and tear of everyone else, even if you cause significantly less problems.

When you factor in the tax benefits of a mortgage, the cost savings you can get because now you can do the work yourself, and the fact that you don't have to pay for things you don't use (no pool, no advertising, no paying for other people's wear and tear) you can reap significant benefits if you are smart about which house you pick.

The fact that I would have to mortgage about 8000 a month for a rental equivalent of 2500 a month tells me that renting is MUCH smarter than buying right now.

 

[JS80]

The fact that I would have to mortgage about 8000 a month for a rental equivalent of 2500 a month tells me that renting is MUCH smarter than buying right now.

Same here, the house I rent for $3200, would be a $5k mortgage.

 

[Bignate603]

The fact that I would have to mortgage about 8000 a month for a rental equivalent of 2500 a month tells me that renting is MUCH smarter than buying right now.

Sounds like your area didn't readust like many of the other places around on the country.

That isn't the case in some places, I'm near Phoenix and I bought a house that costs me $600 a month, taxes and insurance included. To rent something similar I would be paying close to $1000 and wouldn't get any benefits of owning (equity, tax write off, etc).

 

[IronWing]

Sounds like your area didn't readust like many of the other places around on the country.

That isn't the case in some places, I'm near Phoenix and I bought a house that costs me $600 a month, taxes and insurance included. To rent something similar I would be paying close to $1000 and wouldn't get any benefits of owning (equity, tax write off, etc).

With a $600/month payment did you really see a benefit to itemizing? We started with a $685/month payment on a 30 yr and itemizing only made sense the first year. After that, the standard deduction was a better deal.

 

[Bignate603]

With a $600/month payment did you really see a benefit to itemizing? We started with a $685/month payment on a 30 yr and itemizing only made sense the first year. After that, the standard deduction was a better deal.

I've got some other large deductions that push me over anyways. So the mortgage and everything is just tacked on top of that.

 

[DrPizza]

600 dollar mortgage payments? How the hell are you guys making payments that cheap?

If you don't include escrow, my mortgage is under half of that. Again, it depends on the area of the country you live in.

It's a response to the jackasses that claim paying rent is "throwing money away" while 80% of their mortgage payment is going towards interest.

vs. 100% of your rent going towards... nothing?

hey, you have made money selling the house, more power to you. if you sell your house today, would you still make that $100k profit? If you are located in the hardest hit area like NV, FL, CA, you would probably have all your equity wiped out.

This recent bubble & burst isn't something that's historically common. Over the life of a 20 year mortgage, unless you managed to buy at the peak of the bubble, you're still going to gain equity. In fact, even if you DID buy at the peak of the bubble, I'm pretty sure that after 20 years, your home will be worth more than you paid for it.

 

[DaWhim]

This recent bubble & burst isn't something that's historically common. Over the life of a 20 year mortgage, unless you managed to buy at the peak of the bubble, you're still going to gain equity. In fact, even if you DID buy at the peak of the bubble, I'm pretty sure that after 20 years, your home will be worth more than you paid for it.

this thing about financial crises is that they are always here, but they are not here frequent enough so people forget about it. when they re-appear, people don't know how to deal with it.

if you like you draw on historical fact, let's look at japan housing bubble. it has been almost 20 years. oh...the housing price in japan is about 87% down from the peak. guess what? they are still recovering. there you have it, a real life example and I am not pulling this fact from my rear. I am not sure how can you be so sure just because.....

 

[Special K]

Could also be someone who knows how to do math.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

That's a great calculator. I came into this thread just to post it and was glad to see that others know about it as well.

 

[Capt Caveman]

hey, you have made money selling the house, more power to you. if you sell your house today, would you still make that $100k profit? If you are located in the hardest hit area like NV, FL, CA, you would probably have all your equity wiped out.

this is really my view of buying a house. "It is a one-way, highly leveraged, completely unhedged bet on a single asset class. From a purely financial point of view, it makes no sense at all to incentivize people to do this, to hold their wealth in this form."

What I am going to do in asia is irrelevant. I don't even know it yet. If I feel like working, I will. There is another guy in this forum that went to travel for about a year around the world with budget less than $20k. I should have more than him to play with when I am done with this job.

age is relevant to my replies. how many 25y/o will have a company that will move him/her across to another country with everything paid for? and in this economy? get real...

I can sell my current home of 1.5 years for a profit right now. Buy in the right location and there will always be a demand. Note, the Japanese housing bubble was much different than the one in the US. Based on your lack of experience and never being a home owner, your view of home ownership is pretty ignorant and you shouldn't be commenting in this thread.

And in regards to finding a job that pays for overseas housing, you haven't found the right company or you don't have the enough expertise. I used to have to spend months in Israel for work while I was a homeowner at the age of 27. My company paid for all of my housing and even paid to kennel my dogs when my house sitters couldn't take of them.

 

[Zebo]

Same here, the house I rent for $3200, would be a $5k mortgage.

Damn baller.....anyway smart. Peter Shiff a multimillionaire many times over still rents as prices of mortgages still have not hit bottom nor equilibrium he says. I was stupid have about 250K sunk into a place worth 300K and still owe about that.

 

[DaWhim]

I can sell my current home of 1.5 years for a profit right now. Buy in the right location and there will always be a demand. Based on your lack of experience and never being a home owner, your view of home ownership is pretty ignorant and you shouldn't be commenting in this thread.

And in regards to finding a job that pays for overseas housing, you haven't found the right company or you don't have the enough expertise. I used to have to spend months in Israel for work while I was a homeowner at the age of 27. My company paid for all of my housing and even paid to kennel my dogs when my house sitters couldn't take of them.

again, if you invest right, more power to you. If i don't know enough about buying a house, how do you refute my quote on buying a housing? "It is a one-way, highly leveraged, completely unhedged bet on a single asset class. From a purely financial point of view, it makes no sense at all to incentivize people to do this, to hold their wealth in this form." I am quoting from a Scottish economist.

I see a house as an investment instrument under real estate, I guess you don't since you keep referring a house as home.

I am in the financial industry. To most people around my age, I consider myself pretty lucky to found a job after spent 1 month looking for it after I moved back from London. I guess you have no idea how the job market is out there, try 10.2%.

When I was in London, my job was making loans for people that make 7 figures a year. These are the ultra high networth clients. I thing I noticed was most of them would take out a 5yrs interest-only mortgage to buy their house. does it make you wonder why they don't want to pay down the principal and own the house?

I don't think you know what I know, probably more than you when it comes to finance.

 

[xanis]

This has been a pretty eye-opening thread for me. I'm still young (and not even close to being ready to buy a house) but I think I've learned a thing or two, specifically that buying or renting depends on many factors, and neither situation is right for everybody.

Personally, I think that I'm going to continue to rent until I figure my life out. I have no idea if I'm going to need to move to another state (or another country for that matter) so I figure that I'll just rent until I can nail "home" down.

 

[KillerCharlie]

Here a 3 br apartment will cost at least $1100/month. Add on top of that the average house appreciation over the last 10 years (including the recent bust) is about 4.5%.

A decent 3br house can be had for about $300k (expensive area), but that's still a bit better in the long run than renting.

I have been renting for a while and getting kicked out because the owner is selling or because your roommate is getting married is getting really annoying.

 

[iGas]

It is all relative. It is better to own your own house instead of renting if you are handy and prefer to do things your way except condos & area that have Nazi HOA. Renting is better for a person that on a move, or one that doesn't like working around the house.

 

[Capt Caveman]

again, if you invest right, more power to you. If i don't know enough about buying a house, how do you refute my quote on buying a housing? "It is a one-way, highly leveraged, completely unhedged bet on a single asset class. From a purely financial point of view, it makes no sense at all to incentivize people to do this, to hold their wealth in this form." I am quoting from a Scottish economist.

I see a house as an investment instrument under real estate, I guess you don't since you keep referring a house as home.

I am in the financial industry. To most people around my age, I consider myself pretty lucky to found a job after spent 1 month looking for it after I moved back from London. I guess you have no idea how the job market is out there, try 10.2%.

When I was in London, my job was making loans for people that make 7 figures a year. These are the ultra high networth clients. I thing I noticed was most of them would take out a 5yrs interest-only mortgage to buy their house. does it make you wonder why they don't want to pay down the principal and own the house?

I don't think you know what I know, probably more than you when it comes to finance.

Coming from someone who has their Masters in Finance and spent more years in the industry than you have, I'll disagree. Even with 10.2 unemployment, if you have an expertise, finding a new job shouldn't be difficult. Heck, I'm going to be getting a new job offer after the Holidays.

 

[DaWhim]

Coming from someone who has their Masters in Finance and spent more years in the industry than you have, I'll disagree. Even with 10.2 unemployment, if you have an expertise, finding a new job shouldn't be difficult. Heck, I'm going to be getting a new job offer after the Holidays.

actually, i did economics.

I suggest you to read this guy
http://patrick.net/housing/crash.html

I am agreeing with him. heck, i am even buying more SRS, an index fund that short real estate.

 

[lsd]

This has been a pretty eye-opening thread for me. I'm still young (and not even close to being ready to buy a house) but I think I've learned a thing or two, specifically that buying or renting depends on many factors, and neither situation is right for everybody.

Personally, I think that I'm going to continue to rent until I figure my life out. I have no idea if I'm going to need to move to another state (or another country for that matter) so I figure that I'll just rent until I can nail "home" down.

One piece of advice I would give is if you're moving out of city/state to buy a home, rent a house in the considered area for a year. You will get a good idea if you want to stay there without screwing yourself. Also line up a job before you move. I know if sounds like common sense but I've heard about quite a few people in my area who've had to foreclose because they couldn't even get a job after moving here.

 

[Acanthus]

As a finance major, did you ever sit down and calculate what that equity cost you? Care to post it ?

It doesn't really matter in the long run. As long as you are building some kind of equity you are in the black as far as net worth is concerned.

You can rent for 1000 years and gain nothing.

The only real viable argument to this is the current depreciation climate we are in is driving rent below mortgage cost because of the credit crunch. I guess depending on where you live, i will concede that for the next 2 years or so renting may make sense.

However, when the housing market bounces back... we will be back to the land of a very expensive appreciating asset on a relatively low interest loan. Even with a higher payment the long-term equity built will be extremely worth it.

 

[Capt Caveman]

actually, i did economics.

I suggest you to read this guy
http://patrick.net/housing/crash.html

I am agreeing with him. heck, i am even buying more SRS, an index fund that short real estate.

From this quote of his, "On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice as much to borrow the money than it does to borrow the house." tells me he doesn't have a clue. Annual rents are higher than 3% of purchase price and mortgage rates are a lot lower than 6%. He couldn't get these simply numbers accurate b/c it would defeat his argument.

Wow, good luck. You'll need it. The guy is making a general assumption when the market is very regionalized. RE prices for single family homes were up 16% last year in my city(Cambridge, MA) and based on supply/demand, don't see it falling.

 

[Bignate603]

I forgot one potentially very large benefit. If you're planning on staying in one place for a while you know exactly how much you'll pay. A 30 year mortgage effectively gets cheaper each year as inflation takes a bite out of it. On the other hand you rent would typically rise year over year to keep pace with inflation.