Rent Forever, Don’t Buy A Home

Alex responds:
Posted: January 2nd, 2007 at 1:09 pm

When you own, you get your interest payments back at the end of a year. Plus, depending on your credit score, you mortgage payments are not much higher than rent (mine is around $1,200 for a two-bdrm coach house vs. $1,120 for a two-bdrm apartment), so you might as well own the place instead of making somebody else rich.

Money Smart Life » The Dangers of Owning Your Own Home responds:
Posted: January 2nd, 2007 at 1:36 pm

[...] Blueprint for Financial Prosperity is running a Devil’s Advocate series and his first article is Rent Forever, Don’t Buy A Home. We own our home and despite the repair work and property taxes he mentions, I’m glad we decided to buy our own place. However, there are two that mistakes I think it’s easy for homeowners to make. [...]

renter responds:
Posted: January 2nd, 2007 at 2:02 pm

Another aspect of this equation is the ratio of rent to home price. A recent study by the Wall Street Journal showed that rents are now at their lowest price ever compared with home prices. In my home town of Boston, You can rent a two bedroom in a nice area for 1200/month. To buy would be roughly 400K with a monthly nut of roughly 3000. It is obviously a better deal to rent the place, instead of making someone else rich by paying an inflated price. I’ll wait to buy until economics make sense!

Note to Alex - you don’t “get your interest back” at the end of the year. The interest you paid went to the bank. If you are refering to the tax deduction, you don’t have to pay taxes on your interest,but it doesn’t make sense to spend 1000/month in interest to get a $250 tax break. Are you including maintenance and taxes when you compare the price of renting vs. buying? You might also want to factor in the cost of your labor as you spend your weekends raking leaves and shoveling snow…

bluntmoney responds:
Posted: January 2nd, 2007 at 2:17 pm

Ooo I like this idea for a series! It just goes to show that there are positives and negatives to just about everything.

Amber responds:
Posted: January 2nd, 2007 at 2:34 pm

One day I would like to own a home. However, with my current budget its not feasible. I live in a cheap apartment that I share with a roomate. My half of rent and utilities (not counting phone because we each have our own cell) is $350. There’s no way I could find a house with a mortgage payment that low, let alone including utilities. Even if I had a roomate it would be tough to find a low enough mortgage payment. Not to mention all the little things that do come up when you own a house. So for right now, I rent.

Debt Hater responds:
Posted: January 2nd, 2007 at 2:50 pm

I like this idea. Keep ‘em coming!

I really want to buy a home, though the cons to ownership seem big enough to scare me off. But I hate renting… I guess I just don’t like the idea that the place isn’t mine, I can’t paint if I want to, I have to pay “pet rent” if I ever want a pet… things like that. Then again, if my boiler breaks down in the middle of the night (which it did), the maintenance people appear first thing in the morning to replace, whether I’m home or not. Don’t get that when you own a home.

Him responds:
Posted: January 2nd, 2007 at 3:20 pm

Two years ago in Chicago, rents were ridiculously lower than what my friends were paying for their mortgages. Since then, rents have gone up, but it is still significantly cheaper to rent.

The buying vs. renting argument is also pretty skewed when dealing with new grads. Many just don’t have the money for a mortgage plus other associated expenses, nor do they have the life foresight to think that they will be laying down roots and staying one place.

Everyone has a different situation. This particular topic definitely is all about finding what works best in yours.

Sarah responds:
Posted: January 2nd, 2007 at 3:55 pm

I like the idea of post. I think that younger people especially have to be wary of buying a home to soon. For most of us, it isn’t an issue since we just don’t have the money, but for those who can there are definitely other considerations. I would hate to be sadled with a mortgage right now because I’m considering a career change and might need to take a lower paying job temporarily to get experience in a new field. I might be less likely to pursue my dream job if I had an obligation like a mortgage.

Lazy Man and Money responds:
Posted: January 2nd, 2007 at 4:20 pm

I think Renter had it right. It really can depend a lot by geography. I lived in Boston and I have to agree with what he’s saying. Because I was nicely forced (big raise) to move across country, I had to either sell my place in a declining market or rent it for about 2/3s the mortgage payment. I think I’m lucky that I had superb credit and renting it is only at a small loss at the moment.

In Silicon Valley, the mortgage of a 2 bedroom condo ($650K) probably comes in at just under $4000 if you have great credit. My rent is $1900 for an equivalent place. Would I rather buy a very, very small percentage of something for $4000 or nothing for $1900 and invest the rest? I’ll decided with the later and I think it’s a great deal.

Jeremy responds:
Posted: January 2nd, 2007 at 4:22 pm

Renting can certainly make sense in many instances. I rented for about 5 years before buying a home. In those 5 years we moved 3 times. Couldn’t have done that with a house very easily. And the flexibility for us to pick up and move on the drop of a hat was essential in taking advantage of career moves. In a case like that you can’t argue with renting vs. buying.

The same holds true in the opposite situation. Once you are settled down and established you can likely find a home with a mortgage that has the same or a slightly higher payment. Then building the equity into a home would likely outweigh some of the flexibility and additional costs associated with renting instead.

Anyway I like the idea of this series because as you said, there is almost never a 100% answer that applies to everyone. Too often we hear people spouting information like gospel, when in reality it may apply to most people, it will likely not apply to many others. It is refreshing to see some commentary that goes against the grain (even if it does ruffle some feathers along the way).

ISPF responds:
Posted: January 2nd, 2007 at 4:51 pm

Great idea for a series!

I agree with the above comments that if you cannot afford the mortgage + extra costs, then it makes sense to rent. But i dont agree with the devil’s advocate argument that you should rent *forever*. I still believe in the conventional wisdom that as soon as you can afford it, you should buy a house. It costs more to own than to rent for that very reason - you OWN the place, and not just rent it. If the value appreciates (which it likely will, in most markets) its yours! If you choose to put a mini golf course in your back yard, you can! Heck, if you want to go paint the walls green and purple, and have boa constrictors for pets, you da*n well could. That feeling is priceless.

(Not to mention that in the later years of your life when the mortgage is paid off, you will thank yourself for not listening to the devil’s advocate

Dan responds:
Posted: January 2nd, 2007 at 5:47 pm

My wife and I did two columns with an Excel spreadsheet, rent vs. buy. Everyone always thinks the interest deduction is so great and a big reason to buy. As someone already mentioned, you spend $20,000 to get back $7,000 (go broke doing that). Also, we always end up spending money on unexpected items, decorating, repairs, etc. Ten years ago we figured that anything under $1500 a month was rent territory, anything over you get a benefit from buying (we seem to move every two years for transfers). In our moves home appreciation has helped us 3 times, depreciation hurt us once. The interest rates have been in our favor as well. If my company did not pay all the moving expenses, I would have been way better off renting, as it is, we hope we are in our last home, and that in the long run it will be better than renting. I will say this, for maximum flexibility in retirement, we will be looking to rent vacation homes/apartments, etc. and will severly resist buying a vacation home that would sit empty most of the year. We look back on times that we rented as equal if not greater periods of wealth accumulation. The times we have had home ownership, we generally had a higher quality of comfort, satisfaction, the times we rented we had much more freedom to get away, etc. Good luck to all, go with your best situation, rent or buy, its your life!

MillionDollarJourney.com responds:
Posted: January 2nd, 2007 at 6:38 pm

With mortgage interest being tax deductible in the states, it’s a no brainer to buy a home instead of rent if the rents in the area are within a few hundred dollars of a mortgage payment.

FT

Foobarista responds:
Posted: January 2nd, 2007 at 8:20 pm

The other thing about the mortgage interest deduction is you have to itemize to get it. Given that the standard deduction is quite high now, $10500 for married, filing jointly, only the amount of your itemized deductions above $10500 is actually a “win”. If you have, say, $12000 in mortgage interest and pay $4000 in property taxes, the “tax free” part of your mortgage is really only $5500, not $12000.

~Dawn responds:
Posted: January 2nd, 2007 at 10:29 pm

I agree with AMBER- I will rent until the cost of owning a home is a better deal, at this time I get a WAY better deal with renter’s insurance and repairs done by the leaser. The downside is for apartments and the possible noise level of the other tenets, though even there, I live in a more ‘professional’ area so when they are home they aren’t very noisy.

Renting a home would be nice in that way.

sfmoneygal responds:
Posted: January 3rd, 2007 at 4:46 am

I’d buy a home if I could afford but not in the Bay Area. And I pay $500 something a month in rent. Home ownership would cost several times that much in California.

I’ll rent for now and continue to save for the downpayment and see how the market works out. And I’m not real sure where my career is going and if I switch I want the flexibility to be able to pack up and move.

The Travelin' Man responds:
Posted: January 3rd, 2007 at 10:34 am

Reason for the conventional wisdom….

How many people on the Forbes Wealthiest Americans list (or any comparable list) are there having rented instead of purchasing a home? I’ll go a step further. How many even rented a place into their 30’s or 40’s?

That said, I think that this article is a brilliant start to this series. Your do bring out a lot of valid points. Keep up the good work.

Kurt responds:
Posted: January 3rd, 2007 at 10:56 am

“Heck, if you want to go paint the walls green and purple, and have boa constrictors for pets, you da*n well could. That feeling is priceless.”
The other side of that is: if a hurricane comes and wipes out your area, if you own the home, it can be a disaster (look at all the people stilll haggling over Katrina “wind” versus “water” damage). I have zero risk in that regard, and that feeling is pretty priceless as well. Oh, and when my air conditioner breaks, I call the office and it’s fixed by the end of the day for FREE. Didn’t even have to wait at home to let the repair man in. That, and I can up and move to Timbuktu without the hassles of selling/renting my house. I’m personally not so sure that for some people renting forever doesn’t make sense: if you don’t need a ton of space, a smaller apartment, combined with diligent savings (which is really what mortgage payments are) could add up to much more long-term wealth than feeling compelled to purchase a home.

Jim Lippard responds:
Posted: January 3rd, 2007 at 11:58 am

“With mortgage interest being tax deductible in the states, it’s a no brainer to buy a home instead of rent if the rents in the area are within a few hundred dollars of a mortgage payment.”

This looks like almost the same mistake in Alex’s comment, that renter, Dan, and Foobarista have already responded to. It’s really *doesn’t* make it a no-brainer–you need to do more comparison to see if buying is a better deal financially, as well as whether owning fits your lifestyle and future plans. Further, if the only mortgage payment that’s comparable to renting is a negative amortizing, interest-only ARM that’s going to increase a few years out as the housing market collapses, leaving you stuck in it and unable to afford to live there, that’s not a good way to go at all.

Eryka responds:
Posted: January 3rd, 2007 at 1:40 pm

Love this topic. The whole not being able to paint the walls thing… you should look at your lease. Every apartment that I have lived in has let you paint the walls whatever you want to, you just have to paint them eggshell white before you leave. The came goes with affixing things to the walls. Nail hole filler is like $5. Now, you can’t take out a wall, but generally speaking you can do alot as long as it is reversable.

Check you lease.

I plan on renting for a number of years because I am not settled, I don’t want the responsibility or expense of home ownership, and my rent for a one bedroom is cheaper than the taxes, fees, and upkeep for a similar condo. Not to mention I get to stay in a nicer part of town and get a fitness room for free. Granted I live in a place where rent is not $1,200 a month. If that was the case, I might feel differently.

As long as you take the difference you would have spent on the mortgage and put it away, renting might be preferable.

I just don’t want to be a little old lady worried about increasing rents. I would rather know that I owned a home, but thats about 30 to 40 years away.

Brad responds:
Posted: January 3rd, 2007 at 4:06 pm

“…rent as little as possible and buy a home as soon as you can, renting is just like throwing your money away…”

“With mortgage interest being tax deductible in the states, it’s a no brainer to buy a home instead of rent if the rents in the area are within a few hundred dollars of a mortgage payment.”

These are exactly the type of statements I hear from a lot of my friends. It drives me up the wall when people to make claims like this with ZERO backup information.

I agree with your points 100% and have been a proponent of renting for a long time. I used to think that I was missing out on this big wealth-building opportunity of owning a home until I actually sat down and crunched some numbers (lots of them).

Even though I bash on the “joys of owning,” I would definitely buy a home if I had enough money to comfortably afford one…but I don’t believe for a second that it would be the best financial decision for me.

Nick responds:
Posted: January 3rd, 2007 at 6:50 pm

When you rent, you’re paying for a place to lay your head. When you buy, you’re paying for a place to lay your head PLUS making an investment. You should evaluate whether buying is a good investment using all of the same factors you’d use for every other investment including duration, tax implications, potential appreciation, etc. I find buying an interesting investment because I can leverage a relatively small amount in a mortgage payment less what I would pay renting anyway into a monthly mortgage that lends me a very large sum.

As you can imagine, I made the decision to buy. Renting was going to cost about $1,000 and I found a similar quality condo for $300k where the mortgage is approx $2,000.

Some back of the napkin math shows that I am in a 37% tax bracket, 28% federal, 9% state (@!%&* D.C. taxes), so my mortgage actually cost me $1260 a month after the tax deduction (not free as discussed above of course).

Assuming 10% return on $250 (difference between renting and owning), I’d have to sell my house for $6,400 ($250*12) + $400 ($600 - taxes @ 37%) more than it cost me (closing costs, real estate taxes, maintenance, etc.). I estimated that even in a down market, my house was going to appreciate more than 2% ($6,400/$300K) in two years and I would be in the house just long enough to avoid having to pay capitol gains tax.

A lot of factors worked out in my favor (low interest rates, high rent to buy ratio, ability to stay in one place for an extended period of time, etc.) so it turned out to be a good deal for me. I only paid $6,400 and if my house appreciates 3% over two years, I will make 50% on my money ($3,000). If it appreciates 3% per year (APY), I will make 200% ($12,000).

Of course, YMMV depending on your situation.

ricemutt responds:
Posted: January 3rd, 2007 at 7:04 pm

Nice post. My husband and I recently did some quick back-of-the-envelope calculations on renting versus buying here in the Bay Area. I concur with almost everything everyone else has said about living in CA. By our calculations, to breakeven with what we’re paying for rent (and assuming our estimates on property tax rates, maintenance costs, etc. were fairly accurate), the house would have to appreciate at >5% per year for it to be worth buying. Blah.

Terry Piatt responds:
Posted: January 3rd, 2007 at 7:53 pm

Renting is always cheaper in the short run. In the long run, it’s more often cheaper to own your home - but the analysis entails unknowable future projections and thus risk.

I do not see owning a home as a ticket to vast appreciation and wealth. Instead - I earn minimum wage - I see owning your home as a crucial long-term defensive position (esp for low earners) to (1) stabilize your housing costs - something renters cannot do, and (2) guarantee that you will have SOME wealth down the road. I generally recommend buying as little home as you need, not as much as you can afford - remember, I’m thinking defensively, not aggressively.

I would like to build decent, affordable, OWNERSHIP housing (not necessarily single-family detached) for America’s working class. I don’t see anyone else doing it. Is it not possible?

Foobarista responds:
Posted: January 3rd, 2007 at 8:05 pm

In the longer term, the best argument for buying is inflation and hedging: your mortgage will decrease relative to rents over the years, and a fixed-rate mortgage is a hedge against rent increases. Also, California has one rather large reason to buy: property taxes are “set” when you buy your property and the assessment only increases by 1%/year. So, if you’ve owned a house in California for several years, you will catch up with the market rent price, and eventually do better. Also, CA allows you to “keep” your property tax assessment once you turn 55, so you can sell your place that was bought many years ago in the city and buy a nice retirement place in the country without getting reamed by the new property taxes.

As an example, our PITI + maintenance on our house in Mountain View, bought in 1997, is now significantly less than market rent would be on it.

But the above argument is why renting is better than buying unless you are going to stay in one place for a longer time, have a true “investment angle” (ie, you’ll live there for a couple years and then rent out the property at a profit), or have a compelling noneconomic need to own property.

In for a Penny responds:
Posted: January 3rd, 2007 at 9:32 pm

I don’t have much of an opinion one way or the other, but I know in the city of Michigan I’m from, my parents rented a four bedroom, two bath house with a finished basement for $800.00 a month, whereas now we have a two bedroom, one bath, unfinished basement home, that they are paying $1200 in mortgage payments on.

This is a very interesting series, and idea! I will very much enjoy seeing your upcoming posts!

mbhunter responds:
Posted: January 4th, 2007 at 2:49 am

If you live in a bubble area it’s probably wise to sell if you have a lot of appreciation in your home’s imputed value. If you don’t want to move out of the area, it’s probably cheaper to rent than to buy — let the boutique investors get eaten alive as the housing boom comes crashing down while you have your cash earning 5%!

The Simple Dollar » The Simple Dollar Morning Roundup: The Crane Wife Edition responds:
Posted: January 4th, 2007 at 5:26 pm

[...] Rent Forever, Don’t Buy A Home There is a little tiny bit of merit to this philosophy. If you’re going to live in an area short-term, you’re usually better off just renting for a year or two instead of investing in a home. However, as you begin to build serious equity in the house, the home purchase blows away renting. (@ blueprint for financial prosperity) [...]

Jesse responds:
Posted: January 5th, 2007 at 10:54 pm

A downside to renting is that moving is a pain, and when your landlord raises your rent, they have the hassle of moving to hang over your head. When you purchase a house w/ a fixed-rate mortgage, at least you know your payment truly is fixed.

Mighty Bargain Hunter » Roundup for week of 1 Jan 2007 responds:
Posted: January 6th, 2007 at 2:40 am

[...] Blueprint for Financial Prosperity plays the devil’s advocate. [...]

Clever Dude responds:
Posted: January 6th, 2007 at 6:41 pm

I’m glad I found this post because I totally agree with the premise. We bought our first home 2 years ago (the prior poster NICK bought across the street from us last year) because we were tired of moving, and tired of hearing about friends making 200k by selling a dinky townhouse in northern VA.

We went from paying 1500 a month plus some utilities on a 2 br/2 ba split-level townhouse with a garage to a 3 br/2 ba single family with no garage. Our home has .21 acres, AND an in-ground swimming pool. We gained about 900 finished sq ft overall compared to our apartment.

A quick note. We got the apartment on a 1 year deal, and the rent was going up to 1700 a month.

We put no money down (80/20 loans) and got a 5/1 interest only mortgage. Our new payment is 2400 a month (PITI). Knock off the tax deduction for interest paid and we’re paying roughly 1700 per month.

Our home has appreciated by $80k in 2 years (probably 40k in the real world), so in the end, it paid off. However, now we have to worry about home repairs (the furnace went out twice, the fridge twice) and fixing up the place to be more livable ($6k in costs this coming spring).

I think the author MAY be a homeowner wishing he was back in the days of renting when the world seemed trouble free? If not, well, that’s how I feel, but we’re sticking it out until our life situation dictates a change.

» Weekly Blog Roundup and New Blog Blog on Consumerism Commentary: A Personal Finance Blog responds:
Posted: January 7th, 2007 at 4:08 pm

[...] Blueprint for Financial Prosperity plays the Devil’s Advocate and has some sensible reasons for renting rather than buying a house. [...]

links for 2007-01-07 » Personal Finance - Save Money at Binary Dollar responds:
Posted: January 7th, 2007 at 6:44 pm

[...] Rent Forever, Don’t Buy A Home - Jim plays devil’s advocate and explores the benefits of renting vs. buying a home. [...]

wfbe responds:
Posted: January 7th, 2007 at 8:34 pm

I like Terry Piatt’s comment:

“I would like to build decent, affordable, OWNERSHIP housing (not necessarily single-family detached) for America’s working class. I don’t see anyone else doing it. Is it not possible?”

I asked the same question of my friend who’s a general contractor. He was kind of like, materials cost what they cost. $135/sq foot is the going rate now for what you can buy a home for, and the builder, contrator, and subcontractors can still make enough of a profit to stay in business. I asked him if he had heard of any new materials or building methods that could bring that number down and make homes more affordable to more people - his short answer was “no.” I’ve heard it’s even more expensive to build a condo complex b/c of the extra work/materials/compliance issues involved in building a multifloor building.

The median household income is at $44k and the median home price in the US is at $250k (or so I hear) - that seems like a huge gap to me.

Jim responds:
Posted: January 8th, 2007 at 12:15 pm

I don’t understand the claim that a house is an investment. Yes, houses generally appreciate over time. That’s basically “paper” wealth, though, and there are only two ways to turn it into money you can spend: sell the house completely, or “sell” part of the house (HELOC, second mortgage, etc.).

In the first instance, you don’t have anywhere to live, so you’re right back to square one with the rent vs. buy question. In the second instance, you’re back to making monthly payments just to keep a roof over your head, so you’re no better off than a renter.

Savvy Steward » Check Out The Carnival of Personal Finance #82: Superheroes Edition responds:
Posted: January 8th, 2007 at 12:34 pm

[...] Some highlights of the carnival include: Toddlerspit talks about The Cost of Having a Kid Fivecentnickel suggests Renting Forever and Not Buying a Home Getting Green shares How the Holy Bible is the Best Guide to Personal Finance Taking Control Over Money shows How to Reduce the Monthlies Consumerism Commentary asks Do I Need to Report This Income? January 8, 2007 - Category: Budget, Miscellaneous Digg! Furl Del.icio.us Reddit [...]

Carnival of Personal Finance #82 is saving the world! responds:
Posted: January 8th, 2007 at 12:58 pm

[...] Blueprint for Financial Prosperity plays devil’s advocate with “rent forever, don’t buy a home”. [...]

Madame X responds:
Posted: January 8th, 2007 at 1:56 pm

Re. the house being an investment, if you have built up equity by the time you retire, you can do a reverse mortgage for retirement income, without having to sell the house. Your heirs might not get as much from you after you die, but it’s something to keep in mind, and something that would not be available to someone who had rented their whole life. On both sides of the rent vs. buy calculation, there are unknowable factors, but for the longer term view, as long as you stay within reasonable guidelines for your total housing costs, buyers will come out ahead. But in some areas, it’s just really hard to buy something you’d want to live in for what you’d pay within those reasonable guidelines! So the question becomes, are you willing to live in a dump or commute for hours in order to make what is probably a better long-term financial choice!

Get Rich Slowly » Carnival of Personal Finance: Financial Superheroes Edition responds:
Posted: January 8th, 2007 at 4:03 pm

[...] If home-ownership has you scared, Jim at Blueprint for Financial Prosperity plays devil’s advocate, and suggests that you may want to rent forever — don’t buy a home. “The general rule of ‘buy a house, stop renting’ is probably the most strongly believed but most weakly defensible of the common sense personal finance advice concepts out there.” [I think he’s right!] [...]

ISPF responds:
Posted: January 8th, 2007 at 7:47 pm

[...] While there are several great posts in the list, two of them really stand out because they question the validity of “conventional wisdom” regarding some of the financial do’s and dont’s. I really liked reading these very well-written posts that make you think beyond the hype. They are, Rent Forever, Don’t Buy A Home by Jim at Blueprint for Financial Prosperity [...]

peggy responds:
Posted: January 8th, 2007 at 10:06 pm

Very timely article! I am debating whether to continue renting or buying. In my area, house prices are through the roof, but apartment rental prices are also ridiculously high (the landlords know they can charge ridiculous amounts for a simple 1bdrm apartment, since houses cost at least 500K). I’m hoping the housing “bubble” will start to burst and home prices go down….hopefully soon, I can’t stand paying what I do for a tiny 500 sq ft apartment!

moneymonk responds:
Posted: January 9th, 2007 at 4:57 pm

If you are not a stable person of course it makes sense to rent. I think owning will benefit you in the long run.

If you decide to move and sell your home, you can get a profit, if you rent and move guess what…no profit.

Overall I rather be 55+ yrs old and owning than 55+ yrs and renting.( moving every year or so )

In the long run you are comfortable when owning.

My parents are retired and own their house free and clear-

My thoughts are that if you have a family is better to own a home and be stable than raising your kids in an apartment.

The primarly reason for us moving to a house is raising a family!

FIRE Finance responds:
Posted: January 16th, 2007 at 1:23 am

Jan - Week #2 - Round Up Of Carnivals And Festivals!

This week we started publishing our posts at Carnival of Investing in addition to our regular publications at Carnival of Personal Finance and Festival of Frugality. Without much ado let us get down to covering them.

randy responds:
Posted: January 21st, 2007 at 12:40 pm

I agree with Jim regarding a home being “paper wealth”. Your profit when you sell can only be realised if you buy something for less, which after so many years of owning, is often tough to do because house prices have increased elswhere by the time you’re ready to sell. Ever hear a long-time homeowner say, “I couldn’t afford to buy a house in my own neighborhood”? The reverse mortgage scenario might make some sense, but I get a sneaking suspicion that you’re actually getting reamed by the company offering the payout. Those kind of businesses are rarely humanitarian-minded. And you would have to be wanting to stay in that same house/neighborhood.

I think this discussion is overlooking another aspect. What if one rents and invests anything else that might have gone into the cost of buying a house? You’d have the flexibility and no headaches/costs of upkeep and maintenance and also have a big pile of money that according to typical conservative estimates doubles every 8 years or so.

Sean responds:
Posted: January 25th, 2007 at 1:12 pm

I bought my place last April in a Seattle suburb. My monthly mortgage is $650, which is less than what I could find for rent. My credit was good enough that I did not have to come up with more than $1000 for a down, structured teh deal so that the seller paid all closing costs…..in fact the reason I even started looking at ownership was because if I were going to rent an apartment all of the local landlords wanted First + Last + Deposit immediately, which was substantially more than my down.

Further - where are all of you people living that you get maintenance around immediately? I’ve yet to live in an apartment where the landlords didn’t take their sweet time getting stuff fixed.

Lou responds:
Posted: January 25th, 2007 at 3:40 pm

My wife and I have owned our own home for many years and we don’t ever regret buying it. We were renters for two years before buying our home. We rented a small apartment that allowed us to save for a down payment on a house of our own. We purchased a house that allowed us to rent out a one bedroom apartment for a period of three years. Going from renters to landlords overnight was priceless! The rent allowed us to fix up the house but, as soon as we could, we stopped renting. Among other issues, we lacked privacy with tenants in the house.

Aside from the financial considerations, which are many, homeownership has psychological and social benefits that far outweigh renting. Homeownership makes me feel that I am more a part of my community than if I were a renter. Homeownership instills a great sense of pride in what I have achieved and also, since I do much of my own work on home improvements, I take great satisfaction in the work I have done and the skills I have developed. My house has appreciated in value by approximately four times its originial cost but I don’t plan on selling any time soon. Obviously, owning a home is not for everyone (especially young, mobile individuals) but it has some benefits that can’t be measured on a ledger sheet.

Kurt responds:
Posted: January 26th, 2007 at 4:16 pm

“I found a similar quality condo for $300k where the mortgage is approx $2,000.

Some back of the napkin math shows that I am in a 37% tax bracket, 28% federal, 9% state (@!%&* D.C. taxes), so my mortgage actually cost me $1260 a month after the tax deduction (not free as discussed above of course).”

Uh, you financed 100% of the purchase price with a interest only mortgage? If not, your after tax payment is wrong and you are not factoring in the opportunity cost of tying up the downpayment in the house, as opposed to investing it.

gmv responds:
Posted: January 26th, 2007 at 4:40 pm

Somebody here mentioned reverse mortgages. My two cents on that is a reverse mortgage is a pretty bad idea. When you reverse mortgage, you are basically re-mortgaging a home you had previously paid off. It’s a short term solution with rules — and the end result is you or your estate will need to pay the reverse mortgage BACK at some point in the future.

I got this from the FTC website at http://www.ftc.gov/bcp/conline/pubs/homes/rms.htm:
“In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence.”

That tells me all I need to know about reverse mortgages. I’d rather fall for a 50 year mortgage.

moominoid responds:
Posted: January 26th, 2007 at 9:02 pm

I agree with all of these and it’s why I don’t own a home. When I am ready to live somewhere for a long time and if property costs are very reasonable at that time and location I will consider buying a house. But not otherwise.

moominoid responds:
Posted: January 26th, 2007 at 9:04 pm

PS.. interest payments are also money “thrown away”. You only get to keep the principal payments and only if you also maintain the house. The house itself isn’t much of an investment anyway in my opinion, though the land underneath it is.

missy responds:
Posted: February 8th, 2007 at 1:58 pm

There were some very good points brought up here from both sides of the coin. I myself do not believe that home ownership is all that it is cracked up to be. Part of it, I think, comes from how you were raised. Neither my parents nor my husband’s parents owned a house so I do not think we put as much value into owning as those who grew up not renting. Some people would NEVER rent. Losing sight of all of the cons of home ownership, we recently purchased our first home. It’s a decision that has left me with many sleepness nights. Renting affords you so much freedom. Unless you are very well off and have saved a lot of money before purchasing a home, the thought of the “what’ifs” will drive you insane if you are a worrier like myself. I wish I had thought this out much much more before taking the plunge because at this point, I truly don’t think home ownership is for me. I agree with those who say that by renting you are not throwing your money away. Having the comfort of knowing that I do not have to come up with thousands of dollars if something major needs replaced is worth far more than any home equity can ever bring me. My advice for those who are even a little hesitant, seriously weigh out the pros and cons. I hope that someday in the future I will get that great sense of pride in owning my own home that everyone talks so much about.

Chris responds:
Posted: February 14th, 2007 at 3:18 pm

Renting vs. mortgage.

I think of it this way:
- Even if you rent, you’re paying someone else’s mortgage, taxes, insurance, and maintenance, that is unless the person or corporation needs a big tax writeoff, or they bought the property so long ago, that they’re only earning extra money off of it.
- If you can avoid rent, why not stay at home with mom/dad for a little while longer, act like you’re paying rent/mortgage, but put it in your high interest savings account (i.e. ING Direct, EmigrantDirect, etc.). Then you’ll not only have the downpayment ready to go, you might also have some extra money to get furniture too.
- If you can’t avoid rent (for whatever reason), try to share it by getting a roommate, or better yet, get a small house with a mortgage that you can afford, and get a roommate and charge them 1/2 the mortgage payment.

yoyo responds:
Posted: February 18th, 2007 at 2:54 am

Interesting postings!

I live in the bay area and it doesn’t seem to be better buying than renting an apartment here.

I’m renting a 1BR for $750/mo. Buying a condo of similar size would cost $2400 mortgage+tax+hoa/mo (best case I’ve seen so far)
I’ve to admit that I was lucky and my landlord kept the low rent from two years ago. But renting a 2BR costs $1200/mo right now, and buying a similar sized condo would cost $3500 / mo or more.

It seems that buying is good for the long term only (5+ years) … unless you have an appreciation of 5%/year which can reduce the timeframe

Thomas Visone responds:
Posted: February 19th, 2007 at 2:16 pm

DO NOT RENT!! Why would you waste your money paying someone elses mortgage. That is exactly what you are doing. Only job people in college should rent. At the end of the day, you get every dollar you put into a house back. Now, a fool will say look at real estate prices drop! So what! A home is a LONG term investment. Besides.what do you think will happen as house get cheap again..PEOPLE WILL BUY THEM. The market is self-correcting over time. As people begin to buy houses again, the demand will increase and the supply will drop…thus the value will again increase. Besides..why pay all the money just to have to live by someones elses rules and when your done..where did all the money you paid in “RENT” go. Now go sell your house..$$. Really, people need to act their age and buy houses!

John responds:
Posted: February 20th, 2007 at 10:29 am

If you really want to understand the benefits of owning a home (or how to get rich slowly in general) read or listen to the books on tape version of ‘Start Late, Finish Rich’ by David Bach.

Some things many are not taking into consideration: in most urban areas your rent goes up anywhere from 3-5% per year (no rent control). Your 30 yr fixed rate mortgage is just that…fixed. And the issue that you recoup a small percentage of interest outlay each year is not salient…the monthly benefit of the interest write off (if you bought well within your means and generally ‘under market’) gets you very close to your monthly rent. The additional costs of home ownership are not a wash…but are controlable, especially if you are creative. The time it takes for the numbers to invert (that is, for ownership to cost less than renting)is usually along the lines of 5-6 yrs depending on appreciation. I am purposefully not listing any benefit from home appreciation and equity leverage, which is the strongest argument in favor of ownership. Theres a reason why renters average a net worth of $5k in this country, while owners average a net worth over $100k.

The youth/lifestyle flexibility arguements don’t really wash with me…I owned my first home at 20 by finding a good buy close to college from someone who was tired of renting to college students. I syndicated the investment (brought on 2 partners) and we divided the already low down payment. The owner helped us out by having one of his friends front the buy, while we held an option to buy the house at a price that was more than the owner was selling for, but far less than market. Everyone won. We lived in the house while going to school and refurbished it over the year with more sweat than cash. We placed the home back on the market within that year and when sold we netted a profit (even when taking into account monthly payments). Not bad for college kids.

You need to think a little outside the box and read up on the subject.

ISPF responds:
Posted: February 21st, 2007 at 6:32 pm

[...] Sigh! It’s days like these that I tend to agree with Jim’s devils advocate post - Rent Forever, Don’t Buy A Home! [...]

Bob N responds:
Posted: February 25th, 2007 at 7:31 pm

“I’d buy a home if I could afford but not in the Bay Area. And I pay $500 something a month in rent. Home ownership would cost several times that much in California.”

Same here. I could buy a 410 square foot STUDIO in San Francisco for $370,000… or I can just take the money, save it, and buy an actual house in another state.

Seattle Bill responds:
Posted: February 25th, 2007 at 9:21 pm

Let’s talk a hypothetical but very real situation. Two identical apartment buildings sit side by side, both renting 1,000 sq/ft units for $1,000. One apartment converts to a condo and sells each unit for $300,000. Let’s assume mortgage plus escrow is $2,000.

If you’re an empty nester and want a perm ant place to live, do you pay the $2,000 for 30 years, or go with $1,000 a month rent? That $1,000 difference equates to $360,000 over the life of the loan. Yes, rent will slowly creep up, but there is no guaranty that the condo will appreciate, and the equity is meaningless unless you plan to sell. The whole purpose of an empty nester buying is to stay out and not sell.

To me the $1,000 a month increase in standard of living makes more sense than paying $2,000 for an identical unit.

» Devil’s Advocate First Five Recap and Requests on Blueprint for Financial Prosperity responds:
Posted: March 6th, 2007 at 1:24 pm

[...] Rent Forever, Don’t Buy A Home was the first post and tackled probably one of the biggest issues out there, whether to rent or buy a home. The post was very hotly debated, as evidenced by the sixty comments, and certainly set the tone for the Devil’s Advocate series. [...]

briang467 responds:
Posted: March 8th, 2007 at 12:33 am

A lot of interesting comments and math. I’m a long term renter who lives in a market where I’d have to pay about 2-2.5x my monthly rent to buy a comparable place (Los Angeles).

After a bit of spreadsheet work, I figured I will come out ahead by renting:
1. not having to put ~60k capital toward downpayment/closing
2. investing the extra 1500/mo in my savings plan (a lazy portfolio 80 stock/20 bonds)
So after x number of years, I calculate my savings will be greater than had I put that money to work in a house. Obviously a lot of assumptions need to be made about rates of return for the portfolio versus the real estate appreciation.

This is just a plain financial argument. I can easily understand why other people would look at this and want to buy, because it provides additional, less tangible, but very important benefits. Things like stability and pride of ownership definitely matter to some. Personally, I prefer the freedom and flexibility of renting. Of course I’m also a contractor and sometimes take jobs in other cities for periods of 6 months to a year, so I’m outside the norm for stability.

One other thing that home ownership helps is with forced savings. If you are not a disciplined saver, you probably are better off owning a home, because your mortgage payment will be a much higher priority than regular savings. By “forcing” yourself to save through building equity in your home, you will be much better off when you decide to retire. If you are a disciplined saver, this is moot, since you will be putting that extra money to work anyway.

Again, this argument assumes that your mortgage is higher than the rent you would otherwise pay. If you live in a market with parity, and especially if you can get into a home with a small down payment, you are probably better off renting. For me, I like Los Angeles and SF and the ability to move, so I rent.

Diana responds:
Posted: March 20th, 2007 at 11:47 am

I see both sides of this, and have lived/am living both. My husband and I rented homes for years, wishing one day we’d make enough money to own. When he got offered his dream job in another state, I’m glad we had the flexibility to pick up and go (even though we have a son). When he was in negotiations about the job, I had already researched rent vs own, got an FHA mortgage lined up, called a realtor in the new area, and looked at the houses while he was interviewing here for the job. Since we have a child, and knew that this job was one he wasn’t going to be leaving anytime soon, we knew this was the right time to own our home.

I think for every individual person, there are a list of factors they need to look at before making a decision. Knowing that we could finally have a place our son could paint his room Cincy Bengal orange, and have a dog, was worth the hassle for us.

pele responds:
Posted: March 26th, 2007 at 10:32 pm

We calculated how much we can save per year renting vs. owning a home. Our calculations showed that we can save a lot of money as renters. We can then invest that money into different investments that yield higher return rate than a home. The appreciation rates for homes can be unpredictable, so it is risky business. From what I have learned so far, it seems that buying a good home in a promising location is a worthy LONG-TERM investment. However, if you can afford to “flip” houses/apartments by buying cheap and in need of repairs, then owning the home seems like a great short-term investment opportunity.

We calculated that owning a home, especially if only for short-term, can eat up a big chunk of your income because there are multiple expenses, a little here, a little there, and wham! it becomes a lot. Let’s see… add principal, interest, PMI, taxes, special taxes (if in a new neighborhood), insurance, money for emergencies, money for maintenance, money to upgrade or improve the home (putting up a fence, finishing a basement, adding the sprinkler system, etc etc), and finally money to pay the realtor’s commission when you sell it! I don’t know about you, but I was overwhelmed!

Anyway, for now we are renting, saving and investing our money. My friend suggested that one great thing to do if you do not own a home is to pretend that you are paying a mortgage but actually put the money in a savings account or invest it. It could also be a way to help you determine whether you can actually afford a mortgage and other home owner responsibilities.

Something else to consider… how about buying an inexpensive piece of land/lot instead of a home? Lots are low maintenance and have good appreciation if in a promising area. Also, if you have to move for whatever reason, you don’t have to sell it right away, and it will not break your budget.

Any feedback about this?? Feel free.

The Advantages of Renting : Rental Survival Guide : Arming you with information to thrive as a renter in tough market conditions… responds:
Posted: March 27th, 2007 at 7:05 pm

[...] found an article on bargaineering.com that recommends renting opposed to purchasing a home. Now, I’m not telling you to never buy [...]

Tuna responds:
Posted: April 2nd, 2007 at 1:42 am

Only the poor rent. Why simply give your money away to make someone else rich. Land ownership is a hallmark of the civilized. Get over your commitment issues and buy.

dave responds:
Posted: April 5th, 2007 at 8:06 pm

I live in Canada where you can not write off the mortgage interest. One thing people forget here is the fact that when you rent you have all the money left that you would of put on a home . Lets say you had 200,000 cash. Instead of putting it in a home you could have it in a bank at 4% making you 8000 interest a year. At 600 bucks a month rent you could live for free. If you bought a house with this money you would still have to pay all the up keep cost which could be 6000 to 12000 a year. Do the math. Rent is not throwing money away as long as the rent is low. Mortgage interest and taxes can be higher then rent alone.
One other thing people are forgetting. Everyone here thinks houses will go up for ever. No, I don`t buy this. Why? We now have globalization, terrorism, technology,rise of China. All this is depreciating our society. Yes, we are losing our middle class. Good paying jobs are leaving the country to be replaced with low paying service jobs. Then there`s the sub prime mortgages the interest only loans that have artificially rised the price of houses to create the housing bubble. I believe a house today will cost less to buy 5 and even 10 years from now. People may think i am crazy here but i think we are all going to be surprised. We are heading into a recession, a deep one, housing will decline and stay flat for many years to come. Money in the bank will do better then in a home. I bet you, and all of you.

dave responds:
Posted: April 6th, 2007 at 11:39 am

Oh, one other thing. Homes in the 70`s in my area could be purchased for 20,000 . Now their worth around 130k. One would say nice return. Thats about a gain of 550% net profit. Do you really think that is going to happen again? That same house would cost 845,000 if it rose 550% again. Not going to happen. I have friends that think housing always goes up.. That is just brain washing from their former parents. Yes, the ones that made the 550%. Which the kid thinks he is going to get. 845,000 for a house 20 years from now. Give me a brake. China, globalizational, technology will change all of that and that 130,000 house today might still be 130,000 or less 20 years from now. I see it and bet on it. The appreciation of homes in general is done in our society. Its China , india and other third world countries time to expand , develope all at our expense.

dude responds:
Posted: April 13th, 2007 at 8:40 pm

At the end of your mortgage you don’t pay anything. What happens when you get to the end of your rent??

The Engineer responds:
Posted: April 17th, 2007 at 6:15 am

I truly can’t believe dave from Canada…you bet that 130k home will be 845k in 30+ years..you sound like the 1889 Chief of Patents that recommended that the office be abolished because it was his professional opinion that everything that could be invented had been invented!!!!. We have finite desireable locations to live and an evergrowing population..do the math. People like you have been predicting a housing price collapse for 50 years in SoCal, while the smart ones have been getting wealthy for the last 50…if you sell your house when you’re 65, and then rent, if you had any smarts in home buying at all, you would be so far ahead of the 65 year old life renter, it’s not even funny!! Will it last forever? Of course not…but I’ll be long dead by the time it ends 150 years from now!!! And if you enjoy almost any motorsport hobby or any that requires a garage, then owning is priceless…..

William Hill responds:
Posted: April 18th, 2007 at 9:05 pm

I just don’t want to be a little old lady worried about increasing rents. I would rather know that I owned a home, but thats about 30 to 40 years away.

This is what scares me about ownership. Being a “little old lady” living in a neighborhood that was great when I moved in and is now a drive by shooting gallery.

Josh responds:
Posted: April 28th, 2007 at 3:03 pm

You get interest payments back? In what world? I hope you don’t mean in tax deductions…that doesn’t come close to the actual amount paid.

Rog responds:
Posted: May 5th, 2007 at 3:31 am

I agree with Dave from Canada. Many here are speaking so confidently of home-ownership as if they absolutely know that they are going to be earning the same kind of income 15 years or even 10 years later that they are making now. Has it ever occured to them that with the pressures of globalization, their incomes could go down or they could lose their jobs? If you rent, and you suffer a job loss, you have the liberty of moving away without having to worry about foreclosure, which is not only embarrassing, but financially ruinous.

Secondly, I do not know what fields you guys are in, but it is tough out there, and wages have been stagnating while inflation has been wobbling upwards. Now, please don’t bring the argument of starting my own business and saying “see ya!” to the man because that’s even riskier than home ownership.

Finally, I’m just not that confident about the future, particularly based on the way things are currently panning out. When things get strange, I don’t want to be bogged down with a 30-year mortgage. Remember where the word mortgage comes from. It literally means “death vow” or “eternally engaged”. No thank you!

» Don’t Overpay For Rent on Blueprint for Financial Prosperity responds:
Posted: May 9th, 2007 at 8:09 am

[...] Now, I don’t entirely agree with the idea that renting is “throwing your money away,” as many homebuying proponents espouse, but I do see it merely as an expense that should be reduced to as little as reasonably possible. The reason why it’s not throwing your money away is because the housing market has always been difficult to predict, though the trends were always pointing up in the long run as they are even now, and because a house isn’t always a winning proposition even if the value goes up. You’re throwing a lot of money away in interest payments (a small part of which you get back), you’re throwing a lot of money away in maintenance, and you’re throwing a lot of money away in taxes, insurance, etc - all of which are not concerns (though they’re integrated into your rent price) for a renter (I bring these up in the Devil’s Advocate post Rent Forever, Don’t Buy A Home). [...]

Rent to get Richer : Rental Survival Guide : Arming you with information to thrive as a renter in tough market conditions… responds:
Posted: May 16th, 2007 at 12:45 pm

[...] speaks of a similar approach, in there section titled “Blueprint for Financial Prosperity“. Common advice is to rent very little and to buy a home as soon as possible, however, [...]

Robin responds:
Posted: May 16th, 2007 at 6:45 pm

OK, I’m about to be 55 in a few months, and my youngest kids are 13 and 15. I am divorced and renting a 2 bedroom apartment for 1044 per month. I can find a nice 4bedroom townhouse for about 1134. Do I buy (about 4200 per month) or continue to rent. Do I really want to take on a mortgage at age 55, and a soon to be empty nest? What would you do????

Kolonel Krispy responds:
Posted: May 23rd, 2007 at 9:53 am

Correction — you may get back about 30% of the value of your interest payments, probably not that much. It depends on your tax bracket.

Mortgage interest payments are a deduction, not a credit.

mTt responds:
Posted: May 24th, 2007 at 1:36 am

To Robin,

I think you would be wise to rent and then maybe buy somewhere cheaper when you retire. I live in the Bay Area and I’m 38. My rent is 1200/month and to BUY a comparable place my monthly paymnet will go up to almost 4000 month..F that.. Im waiting for an earthquake, recession or maybe I’ll just move. The Bay area was fun for 15 years but I’m over it at that cost!

Matt

Al responds:
Posted: June 8th, 2007 at 11:03 pm

Some important points to consider here:

-If you buy a home that is within your price range, and don’t overextend yourself, the interest + property tax deductions are NOT going to be significantly better than the standard deduction.

-If you invest the savings from renting instead of buying (including the up front costs of down payment, closing costs, initial repairs or updates like painting a new place), then this amount will begin appreciating, while all that money you would have had locked up in a house do nothing for you.

-”Appreciation” of 3%, which is a standard I see a lot for house appreciation, is not really appreciation. It is just inflation. Almost all of the gains in the housing market over the past 75 years have come during two short intervals, one was the 5-10 year period after World War 2, and the other was the recent housing bubble. Most years house increase in value lag inflation slightly.

True appreciation would have to exceed inflation. Yes, rents can go up 3% per year to meet inflation. But the money you’re saving and putting into equity investments should return 10%, which is a 7% real return.

The only reason to buy a house is because you have a non-financial reason to do it. There is no financial reason to buy. And the very richest people in the world rent, they don’t buy.

Leslie responds:
Posted: June 12th, 2007 at 3:03 pm

Fascinating comments! I am 50, have only one child left at home and live in a house in Canada where we cannot deduct mortgage interest payment from our income. I am about to sit down and take a look at my finances to see how much money I flush down the toilet each month for utlities, property taxes, property insurance, mortgage payments, etc., etc.. I suspect I will find that I am spending an equal amount as I would if I rented. Assuming I am correct in my suspicsions, the only reason to continue to own would be for the privilege of having my own garden and backyard. Other than that, there doesn’t seem to be much advantage. Most apartments building let you paint the walls so there is really no “decorating” advantage to owning.

Sure wish I had thought about this a long time ago.

Chris responds:
Posted: June 19th, 2007 at 5:34 pm

I’ve been looking at condos in my area for YEARS, wondering if I should buy or just continue renting. I’m single, no plans on getting married or having kids, and I like the condo/apartment lifestyle. Compared to the apartment I’ve been living in for the past 9 years, a similar 1 bed room, 1 bath, 800 sq ft. condo in my area would run me about $1200 a month, including home owner association fees, mortgage insurance and taxes. That’s DOUBLE my rent. So I’m taking the difference of the two and investing it in my 401K and roth IRA for now. I like the care-free lifestyle, and since I’ve been living here, I’ve had a new washer/dryer put it, a new dish washer, and new carpeting put in. Two years ago, 3 days before Christmas, my water heater broke and was replaced THE NEXT DAY. My rent here has gone up and DOWN in the last 8 years. When I first moved in I was paying $690 a month. It went up as high at $800 in 2000, then dropped down to $625 until last year, when it went up to $650. And don’t forget, just because you own your house, even if it’s paid for, your taxes and home owner association fees can go up, sometimes a lot. My mom, who owns her town home, pays well over $2000 a year in property taxes and over $200 a month in HOA fees. Here’s my take on renting vs. buying. If you like renting, then rent. Just find a way to save and invest some money for when your retire.

Chris responds:
Posted: June 19th, 2007 at 5:44 pm

Oh by the way, people always tell me that I’m throwing my money away on rent, making the landlord rich. True. However, I’ve also been told that by the time you’re done paying off a $100,000 mortgage in 30 years, you’ve paid close to $300,000 to the banks. So either the landlord gets rich or the banks get rich. Either way, we lose

WiseYoungSage responds:
Posted: June 20th, 2007 at 9:03 pm

-Great posts by all

-As I stated in a column I posted on “Degree vs. Non-Degree Page”..One size doesn’t fit all. Below is my personal 2Cents/Background on the issue

-As a young 20 something individual, working for a major Corporation where being able and flexible enough to move is beneficial and can help one move up the corporate ladder much faster. I can not fathom buying a property any time soon.

-For those who say that renting is for the poor.. I can name many a rich individual who also rent. Besides, many wealthy individuals, rent homes, albeit very expensive rental’s. Also, all things being equal, if one is fortunate enough to afford being able to pay for a home upfront, than logically would they not do so??
My parents, though not necessarily wealthy, always rented growing up and never had the slightest concern of having to fix/repair..etc. We were all fortunate enough to live in a great area, and having sibling who are near college age, my folks will not have a problem of moving retiring and travelling as they see fit in a couple of years.

-By renting, for the past 2 years, right out of school, I have built up a substantial personal savings and 401K plan, that with due dilligence will enable me to have enough money to pay a substantial down payment if and when I eventually settle down and want to pursue home ownership.

-I agree, some swear by owning, some swear by renting, but different strokes for different folks. Neither one is good/bad, but to say that renting is throwing money away is a false assertion, as I am sure that all things being equal, their are renters out their who may have more tangible/accessible income than some homeowners and vice-versa.

-Truly, it is all a matter of having sound financial dilligence and what an individual spends the resources they have.

Bill responds:
Posted: June 27th, 2007 at 5:48 pm

My home is paid off but I still have property taxes, approx. $10,000 per year; insurance, approx $2000 per year and hoa, about $1000 per year. This comes out to about $1,000 + a month in base monthly expenses not icluding utilities and groceries.

Marguerite responds:
Posted: July 4th, 2007 at 10:43 pm

I think you are so right. Looked at youtube about real estate bubble. I’m in Canada too. Rent in Montreal is so cheap. I have everything at my door too. Tennis courts, metro, stores, parks ect. All this for 450.00 rent. My landlord never raises my rent either.

ChristianPF responds:
Posted: July 17th, 2007 at 1:26 pm

I agree and I think it is generally good advice to buy a house for people who do NOT have their financial lives in order. If they are never going to save a dime throughout their lives, it would be better for them to at least have a house rather than nothing. But for just about everyone who is just somewhat organized with their finances, I think it could go either way.

mick responds:
Posted: July 17th, 2007 at 10:02 pm

and then there’s the argument of, at least if you are an American, whether you ever really “own” your home….

eminent domain
tax foreclosure
no land deeds
bankrupt building companies (condos, coops, land lease)

Don’t want to own anything the government thinks it is part owner of.

» Debt Isn’t A Bad Thing on Blueprint for Financial Prosperity responds:
Posted: July 18th, 2007 at 8:15 am

[...] don’t think anyone can make a good case against getting a mortgage and buying a house (though I have tried). I also don’t think anyone can make a good case against going to college (again, I’ve [...]

mysticaltyger responds:
Posted: July 20th, 2007 at 2:05 pm

>

I tend to agree that this is true for some people, although probably a minority. I’m gay, single and highly unlikely to ever have kids. Housing costs in my area price me out of the market by a wide margin. For now, I like living here…but it’s just not worth it to try to kill myself to own something.

At the same time, 1/4 to 1/3 of my gross income gets saved in the 401K because I rent a studio apartment.

Diane responds:
Posted: July 24th, 2007 at 4:20 pm

It’s not about comparing the mortgage payment, it’s about comparing the amount you pay in monthly interest plus the closing costs - those two amounts are the ones you’ll never see back again. In my case, my monthly payment (excluding taxes and insurance) is $1331, but about $1200 of that is for interest. Instead of paying a landlord rent, I’m paying the lender rent. And that’s after paying nearly $9000 in closing costs. The closing costs can be even higher if you’re the person selling the house, too; both ends of the deal are hit hard.

Meanwhile, if I only pay the required monthly payment and never pay extra money toward the principal, then I’ll be paying lender “rent” of over $1000 a month for over nine years on a 30 year, fixed rate 6.5%, $210,600 mortgage.

Joe responds:
Posted: July 26th, 2007 at 3:38 pm

I cannot even imagine buying a house.

Life is too short and too sweet to assume that type of responsibility and commitment for an inanimate object.

Just knowing that I can pack up and move anywhere in the world for any reasonis at any time is a necessity for me.

Yes, I am a bit of a dreamy musician type, but I am also quite frugal and responsible

And it seems quite irresponsible to me to deprive yourself of the ability to pursue better career opportunities elsewhere, should they ever arise.

Since college, I have lived in about a dozen different places in four different states, and I now rent in the neighborhood where I grew up and I love it.

There is a good article in the New York Times on this subject from a few years ago.

To read it, cut and paste this link.

http://www.nytimes.com/2005/09/25/realestate/25cov.html?ex=1285300800&en=64f665177066bc85&ei=5090

Josh responds:
Posted: August 1st, 2007 at 12:52 pm

Obviously, you have never fell in love then.

paul responds:
Posted: August 10th, 2007 at 10:48 am

My wife and I owned a commercial/residential property (basically a storefront with two stories above it converted into a condo in a downtown location). Having a renter in the storefront significantly lowered our monthly costs however the entire experience has turned me off owning, I think, for life. When a better opportunity presented itself in another city we put the property up for sale and it took use nearly a year to find a buyer and for the closing date to finally come. The lengthy commute, stress of being on the market and constantly showing the property, and the additional cost of commuting was a terrible experience.

My wife and I decided to never again own the home we live in. If we want to move we want to be able to give notice and vacate immediately. We may purchase a cottage or vacation property (and rent it out when we are not using it) but the ability to be mobile vastly outweighs any “benefits” one might get from owning a home.

Joe responds:
Posted: August 14th, 2007 at 3:04 pm

The rent on my apartment is $650/mo which includes air conditioning and heat. The electric and telephone are about another $70/mo, so my total living expenses are about $720/mo. Since there are about 720 hours in a month, I spend a total of one dollar an hour on housing.

Most of the rest of my money is invested. The place is safe, warm and ideally situated in a great city. But the priceless factor is that I am free from taxes, maintenance, and similar responsibilities. This principle also applies to other areas of my life, and works well for me.

For example, after years of owning cars I do not own one now and never plan to again. This necessarily means that I never have to worry about supplying an automobile with gas, oil, water or air. And I never worry about registration, inspection, insurance, washing or parking duties either.

Without going outside the scope of this discussion, I would like to say I believe that life is THE gift, and that outside of the basic necessities, everything else we own detracts from it. And I say this as a college graduate who has owned a BMW and a Volvo and been to Europe several times and had a very affluent upbringing.

I have also found it liberating to go without cable television, a credit card, a home computer and a cell phone. Recently I gave away quite a bit of fine merchandise including suits and china that I rarely – if ever – used. Rather than sitting in my closet, the dishes are on a family dinner table somewhere, and the clothes are on a man’s back as he walks into a job interview.

Love God and protect life.

Mike responds:
Posted: August 26th, 2007 at 12:48 pm

I stumbled on this post looking for First Time Homebuyer articles.

It’s interesting to see that the comments have continued for several months and really run the gamut of reasons. Saving money, remaining free, etc. I would assume that most (not all) of the comment come from 20 somethings. The post before this one (Joe) has obviously had a religious experience to alter his lifestyle so dramatically. All good stuff!

Here’s what hasn’t been said:

1. People buy homes because they WANT their own place not because they are a good investment.

2.Like it our not, owning your own home is the #1 way people accumulate net worth in this country. This isn’t a GOOD statement. People shoud be saving and investing not relying on their real estate, BUT it’s a TRUE statement.

3. The older you get, the more you wish you bought a home earlier in life. I have never seen anyone in their 40’s buy their first home without acknowledging this fact.

4. Both renting and owning have their freedoms.

5. Short term buying and selling will most likely lose you money but the VAST majority of homeowners do not engage in this practice. If you plan on moving soon, you are foolish to buy.

6. Many renters are afraid to buy. That’s OK, it’s scary, but don’t rationalize if that’s the case - just admit it.

7. Some renters truly have no desire to own. That’s OK too - again, don’t rationalize - just admit it.

8. The author of this article owns a home. I bet he would’nt go back to renting. How many people do you know that bought their first home and then decided to sell and go back to renting? Less than 1/10th of 1 percent.

Some things we just grow up expecting and wanting. Our “own home” is at the top of most people’s list.

Rene responds:
Posted: September 6th, 2007 at 2:13 pm

At one time I really wanted to buy a home and did. I was a victim of a predatory lender. I had no idea how much it actually cost to own a home. It sent me into bankruptcy. So after rebuilding my credit I thought long and hard if I wanted to repurchase a home. If you get a 30 yr mtg you typically repay 2or3 times the amount borrowed. So unless you can afford a home in an up and coming neighborhood you will never get back the 2or3times you paid only what you borrowed. Not to mention yearly rising property taxes and maintenance. I continue to rent and I love it. I pay my rent,light and gas then I ‘m free to invest,travel or do whatever with the rest of my money. I look a homeownership as an investment. Unless I can purchase a home for half the market value I’m opting out.

Jude responds:
Posted: September 11th, 2007 at 12:11 pm

Despite what conventional wisdom is, owning your own home is a luxury and not an investment. When calculated over 30 years and accounting for all cost, the return on residential real estate comes out to be around 1.5% per year. The reason owning a house *appears* to be an investment is because a mortgage is a form of forced savings. If you were to rent instead of paying mortgage interest and had the discipline to invest the additional money in stocks, bonds, or even CD, (returns of 5-15% per year) by the end of 30 years you would have many times the money of a person who bought a house!

Paul responds:
Posted: September 24th, 2007 at 2:34 am

I’m sick of these morons talking about how a house is a write off. Guess what — you only get back 1 of every 3 dollars you spend in interest. If you want to give me 3 dollars and I give you 1 dollar, then let’s do business.

Joe responds:
Posted: September 24th, 2007 at 10:35 am

One great comment by Thoreau that I think applies well to this discussion is:

“The cost of a thing is the amount of what I will call life, which is required to be exchanged for it, immediately or in the long run.”

Maybe we should look beyond the nickels and dimes that are involved in any purchase and also count the hours, minutes and units of energy that are part of the cost.

Franco responds:
Posted: October 14th, 2007 at 12:45 pm

It is not true that your housing expense is “fixed” when you are the owner.

I had a cheap fixed rate mortgage on my condo in Orange CA but the HOA dues increased every year like clockwork. And selling that place was one of the most stressful times I ever went through. We’re renting now and not sure we’ll ever own again.

Lauren responds:
Posted: October 17th, 2007 at 12:50 pm

My husband & I are 28 & 27 years old, respectively. All of our married friends, and even some unmarried ones, own their own home. We are one of only two couples of renters. While we do want to own our own home one day, we don’t have any immediate plans to buy a house. We have been together