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Rent Forever, Don’t Buy A Home
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With the new year comes the inaugural post for my new series, the Devil’s Advocate posts, where I try to argue the other side of common sense personal finance advice (read the Devil’s Advocate series introduction post). This post will tackle one of the cornerstones of well-accepted advice: rent as little as possible and buy a home as soon as you can, renting is just like throwing your money away. I think that, like all one-size fits all advice, is completely wrong and here’s why.
Renting Keeps You Flexible
When you rent, you can pick up and move almost whenever you want, with very little penalty (perhaps an early termination fee of some kind); when you own, selling a home can take a very very long time. You lose a lot of flexibility when you “put down your roots” and this is one the biggest reasons why you shouldn’t buy. When you want to look for a new job, you’re restricted to looking in the geographic area around your home. If you ever get a job offer in another area, you have to go through the headache of selling your home before you can take advantage of it. If you rented, you could just end your lease, rent a moving truck (avoid U-Hauls!), and just go.
Someone Else Does The Repairs
When you own your own home, every time something breaks, you have to fix it. Every time something breaks and can’t be repaired, you have to fork over the cash to buy a new one. A new refridgerator costs thousands, a new washer and dryer is on the hot side of a thousand bucks, a new dishwasher can set you back a couple hundred bucks, and that’s just the cheap stuff. When you rent, hopefully your landlord will take care of all of your problems, fixing things that need fixing, replacing things that need replacing, and if you pick your landlord correctly, it’ll be a corporation with deep pockets.
Owning A Home Is More Expensive Than It Looks
With renting, you do throw your money on rent because you never gain ownership of the place you’re renting. However, when you own a home, you also throw your money away on other fees and taxes that never go towards your home ownership. For example, you’ll pay property taxes, homeowners association dues, condominium fees, and any number of other fees associated to the area your home is in – none of which go towards the equity in your home. For example, on my home, I pay about $3,000 in property taxes each year plus $30/month for HOA fees, and $500/yr for a parks and recreation fee.
Renters Insurance Is Much Cheaper
When it comes to home related insurances, renter’s insurance is ridiculously cheaper than homeowners insurance – oftentimes ten times cheaper. I was able to get renter’s insurance when I was renting for as little as $7 each month but now I’m paying for homeowners insurance at $55 each month – a difference of $576 each year.
Home Prices Can Go Down Short-Term
One of the cornerstones of the argument to buy a home is that home prices always go up. I’m not one of those haters who sees the current housing market and is ready to throw falling prices into the faces of all those people who bought a home (I bought one last May, arguable near the peak of the housing prices nationally), but if you treat the housing market like any other market, you’ll recognize that in the long run every market will go up (yay inflation). The problem with that theory is the fact that while you can invest in the long term, reality forces you to live in the short term and in the short term the market can go down. Is this a strong enough argument to rent? Likely not, hence being placed last in the set, but it is a consideration.
Summary
Owning a home is something seriously significant, it’s a life changing decision, unlike investing in a 401K, which would likely not change much in your life right now; and so it’s not one that should be entered into lightly. My honest opinion is that 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.
Please weigh in! If you have an opinion, one way or another, I hope you will share it!
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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.
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.
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.
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.
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.
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.
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.
At the end of your mortgage you don’t pay anything. What happens when you get to the end of your rent??
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…..
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.
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!
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????
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
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.
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.
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.
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
-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.
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.
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.
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.
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
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.
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.
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.
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.
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!
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.
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.
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.
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 for 8 years and have so far lived in 3 different cities. Both of us like having the freedom of only being tied down to a yearly lease and having the ability to move anywhere we want to. Our friends don’t have that same freedom to pick up and move that we do. We’re currently living close to where we grew up and we 100% know that we do not want to settle down here, so we’re keeping our options open.
As for the issue that rent & mortgage are the same, we pay $625 per month for a great place and our homeowning friends pay twice as much. I don’t make that kind of money right now to be able to give that much towards my home.
I’ve rented before, and as long as I can afford to buy, I will. Buying gives me an investment that will allow me monetary clout I can’t get any other way. YES, it can get bloody expensive (have you ever paid for a new water main to the house? OUCH!! $2500! – and the yard still looks like hell!) but not only do I get a HUGE tax refund, I can USE the equity in the house against credit cards and other loans to get stuff I ordinarily could NOT afford.
By using the equity I build up in the house, I can from time to time take a small home equity loan and kill off a credit card – either kill it off and close the account, or zero the balance and let it lie dormant for a couple of years until I clear the short-term home equity loan. I can do the same thing for personal loans, car loans, or any other loan. And, as long as the total of mortgages and home equity loans never exceeds resale value of the house, ALL the interest is TAX-DEDUCTIBLE. Try THAT with your credit cards, my friends.
If the Infernal Revenue Service wants to play hardball, they need to remember that as long as I play by THEIR RULES, I can play hardball, too. And I WILL.
Just like I can deduct interest on an RV as long as I have a mortgage on a primary house, because that RV (Recreational Vehicle) has a kitchen, a bathroom, and a bedroom, and therefore can be considered a vacation home – and THAT is also a tax-deductible interest!
But NEITHER of those can be deducted if you are RENTING.
PS: NEVER get tied into a Home-Owners Association if you can POSSIBLY avoid it!
NEVER get tied into a Community Association if you can POSSIBLY avoid it!
These are two of the most insidious, outrageous, dictatorial organizations ever to offend our country. They are invariably dominated by people who have nothing else to do but interfere in the lives and business of other people, persons who are convinced that THEIR individual tastes are the ONLY correct tastes, and should be enforced – at gunpoint! – on the rest of the civilized world.
I would opine that they should be taken out behind the barn and shot, but that is cruel and unusual treatment – of the bullets!
The best treatment of these ‘Mrs. Grundys’ would be to forcibly ignore them, but to do so would only empower them to greater intrusion upon all of us – for they will NOT be denied. After all, remember the Pilgrims and Puritans? And the Salem Witch Trials? Who do you think conducted all those dunkings?
It is clear that one size does not fit all. There is nothing wrong with renting nor should it be considered foolish to do so. If equity is the main concern, owning a home is not necessarily the best investment. If renters can be disciplined enough to invest instead of sinking every penny into a house, then renting can offer so many other freedoms that owning cannot. I would rather rent than be house poor. Who cares if you own it? Can you afford to do anything else, take vacations, etc.? No?
I’m renting in two cities (Phoenix and Baltimore). I pay a total of $2400. It’s not nuts – I get a good tax break (IRS publication 1542). I paid mortgage payments before. But got out of a declining price situation in the mid-1990s. Been renting ever since. I enjoy the freedom of renting. I have seen neighborhoods of middle class homes destroyed by bad neighbors moving in. If that happened to me in an apartment, I could leave at the end of the lease. One of my apartments is in a nationwide corporate trust and I can actually transfer my lease to another apartment complex within that corporation immediately. My job takes me from city to city, so I have no time to establish roots. This is the best time to rent, actually, since rents are cheaper by far compared to Principle+interest+taxes+insurance+Maintenance (PITIM) on a house. Eventually I will consider buying. But I like my situation I’m in as a renter. I can earn more money than most of my contemporaries since I am very flexible and am willing to live coast to coast for a work assignment.
Regarding Mike (August 26 post) above:
Owning a house is NOT the best way to gain wealth. Where did you hear such a myth? Stocks return a higher annual gain over the long haul than real estate. The Schiller index over the last 100 years shows that a house returns just 1% over the inflation rate on the average while large company stocks (in an index fund and reinvested) return 7% over the inflation rate on the average.
One argument that some advocates of buying a house like to make is that you will be better off financially the longer you stay in a house. Let’s assume that this is true, and let’s assume that money is the only consideration in making this decision.
For better or worse, it seems to me that the idea of putting down roots anywhere and staying put the rest of your life is becoming obsolete. Certainly, working for one company all of your life is much less common today than it has been traditionally. We live in a world economy where people pursue career opportunities all over the world.
And of course, there are other reasons that you might want to move from a given location such as disagreeable neighbors or the desire to care for loved ones in another city, or simply wanting to retire early to a more pleasurable location.
Also, it seems that when a person does buy, he often buys more than he needs which is probably a bad idea for any purchase. He will have to pay to heat, air condition and maintain a basement and spare bedrooms and other areas that he probably never uses.
I recognize that today with the Internet much work can be conducted from any location and this might be one incentive to stay in one place, but there are many reasons that argue against it as well.
People usually justify saying that the you get tax deduction for the interest paid on the home mortgage.
I would love to get $100 from you and give refund of $30 to you in April next year.
Are you better off in such a transaction?
And you don’t get ALL of your interest payments back.. just the part that is equal to your tax bracket (25%, 30% or whatever). The remaining 75% went to the mortgage company.
5 years ago i had the choice of renting cheap and investing in my 401k or skipping the 401k to get into some really nice condos. now i have 20k in my 401k and i’m still renting cheap. those condos have all dropped in value. i could’ve been out my 20k and in NEGATIVE equity right now if i would’ve bought. but it’s a buyer’s market now so we’ll see…
Here is a verse from the Bible that appears in two Gospels that should be of interest to people:
Jesus answered him, “Foxes have dens and birds of the sky have nests, but the Son of Man has nowhere to rest his head.” (Matthew 8:20) (Luke 9:58)
Can we leave religion out of this please? Geez.
I saw an interesting article on global warming where they suggested the top ten things to make the world a little greener.
One of them was to move to New York City and live in a high rise building in mid-town Manhattan.
Apparently, the convenience of walking to the store for food, clothing and entertainment is more environmentally friendly than driving to the mall.
And it seems living in a building that reaches upward instead of outward is easier on the planet than maintaining a spacious home with a sprawling lawn.
Lots of comments for this one for sure! I am a middle aged empy nester who lives alone. I have limited income, my rent is very low. I could afford a mortgage with a higher payment. I could not however maintain the property due to health reasons. Even people where I work constantly nag at me to buy. It is my belief that ownership is best, however only if you are able to maintain the property you purchase. I so get tired of being made to feel as if I am a second class citizen because I am a renter. One is not necessarily a “fool” if one does not buy. I do have 4.5 acres of undeveloped land in a rural area near the Ozarks. Beautiful place. Very cheap at the time it is bought. Taxes less than 200 a year. Equity is building by the second. I would say by the time I retire, it will be worth as much as my 401 and profit shares with the company I work for if it continues at the groing rate.
Home Owners associations are not all bad. I pay 100 a month for mine which seems high. However, two years before I bought they put an 8,000 dollar 15 year roof on my house. They also put a fresh coat of paint on it every three years and take care of any costs on the outside of the house.
If you have a dictator then you need to get the majority to vote that person off the board.
Rules are not bad they keep your neighborhood from becoming a junk yard.
I don’t know how the idea of home ownership came to be defined as the “American dream.”
First, as these many posts attest, there are people who would not want to be bothered with the responsibilities of owning a house.
Many others could argue that owning a house is not necessarily a wise investment of income either.
And based on current news reports regarding mortgage problems, too many people bought that dream without knowing what they were doing.
Finally, if I’m not mistaken, there are people in other countries who live in houses, and probably don’t refer to it as “The Armenian dream” for example.
Every so often, renting IS better than owning a home. If you can sell at the peak of a market and then switch to renting for a while. Then, buy in again when the market is soft, you can make a ton o money!
On 12/9/07 the Associated Press had an article about people who tap into home equity for cars and vacations and found that many people don’t really own their homes. They also said that:
“Now slipping home prices threaten to further erode the value of many Americans’ single largest asset, curbing consumer spending and jeopardizing retirement assets.”
Lets see single people
5000 yr rent vs. property taxes + loan [interest(1-.28taxbracket)] +
Principal on loan+insurance+ maintance & extra due to
size,age
$5000 vs. $2400+150000[7%(.72)+ Principal on loan+insurance +1600
$5000 vs. $2400+7500+ Principal on loan+ Insurance +1600
$5000 vs. $11500 + principal on loan and insurance
I still don’t see buying as a viable option even one as generous as posted.
In the ongoing debate regarding home ownership versus renting, we now appear to have a clear winner.
Looking at recent financial reports from the media we see that:
(1) Many Americans are in debt,
(2) Many Americans cannot afford heath insurance,
(3) Many Americans are not saving enough money for retirement,
(4) But many Americans are willing to accept risky mortgage loans in order to buy their own houses,
(5) So now ALL Americans are facing an economic recession due to a crisis in credit and a slew of mortgage foreclosures.
It probably makes better financial sense for many people to rent modestly and invest their savings in stocks instead of committing themselves to making large payments for a mortgage, interest on a mortgage, homeowner’s insurance, property taxes, utilities and maintenance costs.
Renting also appears to make more sense in terms of family values as well, since renters are free to follow career opportunities in the global economy with their families, and then spend more time relaxing together in the park instead of fussing over the front yard on a sunny spring day.
I saw an interview with Tony Bennett where they asked him about the many decades he has maintained his popularity in show business.
If I remember correctly, he said that he simply enjoys thinking about his work, and that he is not a “Thing person.”
He went on to say that he doesn’t own a house, a boat or even a car, and it seems that material possessions mean nothing to him.
I’m sure that his New York apartment is a little bigger than mine, but I agree with his priority in this regard.
My husband and I have been renting our first rental for almost 2yrs with the goal of saving money to then buy what home we wanted. Our rent is only $400/month. And its a great house with a full basement. Sure, there are only 2 bedrooms, so our 2 children have to share, but it sits on ten acres and very private. Once we buy, I know that the money we saved each month will help in buying a new home and land, so I dont regret renting.
Thanks, bamababy24