Is Renting Really Better Than Buying a Home?

Personal finance blog Get Rich Slowly breaks down the costs, savings, and investment gains associated with both renting and buying similar homes in the same market and finds that renting is a much better financial move. How much better? Tens of thousands of dollars better over the course of 30 years.

The losses start on day one (actually, they are the worst on day one) and continue for a couple decades.

Right off the bat, you see that simply trading straight across from renting to owning results in a 78% more expensive monthly bill. That’s not exactly chump change. With even a slight upgrade from renting to buying (which most first-time buyers are prone to do), you can easily see how the total monthly costs would be more than double.

In fact, not until the homebuyer has been paying down the mortgage for over 20 years will the amount they are “throwing away” be less than the renter.”

They go on to debunk what they call the “owning your own home is a forced savings plan” and “home ownership is an excellent path to build wealth” myths — with pretty convincing arguments. However, they hedge a bit on the final conclusion.

For most people buying a home will result in their largest monthly bill (by far), and because they believe that it will bring them wealth or that they are “throwing away their money” if they rent, they often take on a much larger home debt than a prudent budget would allow. It is a real shame when people are driven to get into the housing market because of misplaced notions of imagined financial benefits. Of course, everyone’s circumstances are different, and for some (particularly those that live away from the coasts) the numbers may actually work out in favor of buying.”

Certainly some of their assumptions can be called into question (and are in the comments) and there are, of course, non-financial reasons for wanting to own a home. That said, they certainly do a good job of showing the “conventional wisdom” of buying over renting may not be that wise a financial move after all.

Like most other financial issues, whether buying or renting is best for your pocketbook depends on your unique situation. Be sure to run the numbers and list the pros and cons (financial and non-financial) before deciding which way to go. Choosing the better of the two options for yourself could net you a hundred thousand dollars or more to your bottom line.— FREE MONEY FINANCE

Renting vs. Buying: The Realities of Home-Ownership [Get Rich Slowly]
(Photo: Getty)

Comments

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  1. Wormfather says:

    You know I’ve had this argument with my fiancee many times and I seem to get no where, I’ll go, armed with this information, into the trenches one more time.

  2. rapidblue says:

    well I bought a house and sold it 7 months later for $100,000 more than I paid for it…so I would say it was a good financial move.

    And… when I bought my first condo, the mortgage payment was a couple hundred dollars less a month than I would have been paying for rent anywhere in the city.

  3. hustler says:

    I can get a nice 2200ft^2 home in Dallas for $180k with a pool. Its probably a bad idea to buy in the inflated property value areas, but not here.

  4. FatLynn says:

    The NYT Calculator is great, because it lets you set advanced options. Things like income tax breaks, assessments, insurance, and closing costs really affect the formula. Also, any improvements you make to your home can earn you money when you sell. No, it is not a great idea to buy more home than you can afford, but the fact is that there is no one choice that is right for everyone.

  5. iMike says:

    Reinforcing a point in the article above: YMMV. Run the numbers based on YOUR market and YOUR personal situation.

  6. nweaver says:

    Also, [www.icsi.berkeley.edu] has my spreadsheet I used to make my decision to keep renting.

  7. rbb says:

    In my case, renting would have been a big mistake. I bought 13 years ago. I scrimped to save up a 20% down payment (actually, I just put a pay raise I had received 9 years prior into a monthly investment).

    Now, through a couple of refis (fixed interest), my mortgage payment is just over a $1000. Throw in an extra $400+ a month for property taxes. The going rent for houses in my area? $2500 to $2800!

    My 20% down payment has increased in value by over 800% (tax free) even with the current housing market slump. Oh, and yes, the difference between “renting” and “buying” is being saved in a ROTH IRA and investments.

  8. humphrmi says:

    There is a subtle but critical flaw in his numbers. He lists the rent for the hypothetical home as $1495 / mo now. For the owner, he lists the “maintenance” expense as $354/mo, but assumes that the renter doesn’t pay that. So if the landlord agrees to completely absorb the cost of maintenance, he’s left with $1141 per month of income from the property. And that doesn’t include the taxes and insurance that the landlord has to pay, if you include those the landlord’s take is down to $571, and that’s before he pays any mortgage on the property. And even if he doesn’t have a mortgage on the property, $571 in net income means the landlord will never be able to sell the property because a new buyer would be unable to mortgage it as an income property.

    A landlord is not going to run at a loss forever. In fact, the numbers are based on rental rates *today*, and (unlike fixed rate mortgages) rental rates swing with their own market cycle. Five years ago, rents were up and kept going up every year. So, I would say (A) recalc the numbers with a realistic rental amount, and (B) include an annual increase in rent (unless you are lucky enough to find a landlord stupid enough to rent you a house for the same price for the rest of your life.)

  9. FatLynn says:

    @nweaver: Now I feel stupid, because there are things on this spreadsheet I don’t know.

    Anyway, I would wager a guess that once you get into an income bracket where more than 30% goes to the government, there is a huge shift towards the value of buying.

  10. CreativeLinks says:

    Had a little problem with the numbers in this article. Would love to know were you can rent a $425K house for $1500 a month.

    Also, if you are paying a $2000 month mortgage, how does he get the tax savings at $327?

    In your first 5 years, all your interest is deductible–or roughly $1600 a month, no?

  11. TexasScout says:

    I can’t even comprehend figures of that size. I bought a 2050 square foot house in 1983 for $63,800. My payment now is less than $550 a month and my insurance is $900 a year. Taxes are $980 a year.

    And people wonder why Yankees move to Texas.

  12. nequam says:

    @rapidblue: Was that house a residence for you, or strictly an investment? In any event, nice job.

    Some profits earned in an inflating market are illusory. This happens when an owner sells his house in an inflating market and then rolls the profit it into a larger house in the same inflated market. When the market deflates, they end up no better off (and, in fact, they have a larger house which may be even tougher to unload given the market conditions).

  13. catskyfire says:

    Do note, though, that it says to look at the financial and non-financial aspects.

    If you own your own home, you can make any changes you want, repaint without permission, and usually have pets. You can have a garage, use power tools in your basement, and build a treehouse if you like.

    On the other hand, any repairs are allll yours.

  14. SavageATL says:

    I’m surprised no one mentioned the benefits of a 15 year mortgage vs. 30 year mortgage. Yes, your payments will be higher- about 900/month higher, in the example given, but you pay about half of what you would pay with a 30 year mortgage. It sounds like a lot more in monthly payment but with two incomes and some judicious economising it’s quite possible. Or you can find a less expensive house. The 30 year mortgage is a dinosaur left over from Ozzie and Harriet days of one income households who would actually occupy the house until paid off and had a lot less house than people do nowadays.

  15. FatLynn says:

    @CreativeLinks: Right, so if you deduct $1600, and you are in a 20% tax bracket, you actually save $320.

  16. bbbici says:

    For me, the freedom of having “play money” to invest in other money-making ideas (design prototypes, small businesses) outweighs having a lawn and extra rooms full of stuff. I also like to be able to pack up and move at a moment’s notice to follow the hottest job markets.

    If i would have bought a house a couple years ago, i would still be stuck slogging it out in a miserable job i hated. renting gave me the freedom to quit that job and land the amazing one i have now.

  17. DeeJayQueue says:

    Articles like these help me sleep better at night knowing that I’ll probably never be able to afford a house, so I don’t feel quite so much like a schlub.

  18. Kurtz says:

    @humphrmi: Some landlords will avoid raising the rent to keep good tenants. My landlady has kept my rent well below market value just to keep me as her tenant. She’s not stupid – she’s had units sit vacant for months before, so she knows it’s better to make deals with long term tenants, rather than get greedy and possibly end up with an vacant unit and no income.

  19. Malethos says:

    The comparison in the article is an apples to oranges comparison. Assuming the two properties are identical the landlord is renting at a huge loss ( assuming that they have any kind of mortgage on the property at all). Either that or this is a cherry picked example. (i.e. the a pricey house to buy and/or the least expensive rent in the area) Renting can be a good investment in some circumstances ( especially if home prices are high/ over valued), but this posting seriously exagerates the virtues without covering the vices.

    The 3-5% rent increase anually also does not seem to reflect my rental experience in past years, but that may just be my personal experience.

  20. Starfury says:

    I bought my place back in 1994. Rent at that time was $730/mo. My house payment (800 sq ft apt to 1700 sq ft house) was $1077. After 2 refinances including taking $$ out for a kitchen my payment on the house is $975 plus $400/mo for insurance/taxes. I can’t rent around here for anything close to that amount.

    Also: even with the depressed housing market I’ve tripled the value of my home since I bought it.

  21. Flynn says:

    Yeah, I question his rental costs, too. In Chicago, most 2 BR apartments are renting for the cost he listed his 4 BR house renting at.

    That’s gotta be a huge deciding factor. I couldn’t possibly rent my place for what I’m paying in mortgage now. If the numbers depending on the rent work out to be more, then yes, he’s right. However, rent IS elastic, far more so than a 30-year-fixed mortgage, so it all depends on that.

  22. JustAGuy2 says:

    @CreativeLinks:

    Well, I don’t know about a $425k house for $1500/month, but in NYC, you can rent a $1.3MM apartment for $4k/month, which is even more tilted toward renting.

  23. radiofree says:

    The whole thing seems counter-intuitive to me, but I only have my anecdotal evidence to go on: When we bought and moved from a rental to a co-op, our monthly maintenance and mortgage combined were equal to what we paid in rent. Then, a few years later when we bought up, we are paying a ridiculously low amount for our space compared to what it would cost to rent, even amortizing the closing and legal costs of the purchase.

    Maybe NYC is an oddity, as cheap rent is scarce anyway (yes, we CHOOSE to live in Manhattan). But the net effect is that we pay net, after taxes, after amortizing the costs of moving in, etc., about $2,200/month plus utilities for 1,100 square feet right across the street from Riverside Park and within five minutes walk to the 1 train.

    I would not trade that for renting an apartment.

    Maybe, further, it depends on when one bought initially. We bought our first apartment in 1998, and the value more than doubled. If we had rented, the value of the apartment would’ve gone up, as would the rent, but we wouldn’t have realized any of that gain, just the cost.

  24. ChrisC1234 says:

    I really hate things like this… In many places like Southern Louisiana, a house can be purchased for LESS than rent. I bought my house (3 br 2 bath) in 02 and my mortgage payment (with taxes and insurance) is $700 / month. To rent an apartment even close to comparable would have been $1000 / month. Once you factor in the skyrocketing rents post Katrina (and property appreciation for homes undamaged from Katrina), I’d have to be paying $1500 / month in rent. My home is now worth $50k MORE than it was before the storm, and my mortgage is still $700 / month.

    I’m pretty certain that purchasing was the best decision.

  25. anatak says:

    “If you rent, you’re throwing away your money.”
    “Owning your own home is a forced savings plan.”
    “Home ownership is an excellent path to build wealth.”

    Wow, these guys are amazing! Debunked all of those myths using one (ONE!) terrible example. Glad to see they found some place in America where rental house rates are less than mortgage payments. An atypical example in many markets.

    …that $85,000 saved up for a down payment…

    That $85k will cover many people’s entire HOUSE or at least a large chunk of it. An $85k down payment is absurd especially for a 3/2.5 with 1850sqft. This must be the “head up your ass” method of home buying. Show me an example of this where it works outside of these crazy markets when prices are peaking.

    If their point is don’t buy in bubble markets when prices are already inflated, then they went the long way about explaining that one.

  26. robotprom says:

    big ass YMMV. When we lived in Georgia, the numbers showed that we where better of buying, that we would break even in 3-4 years. When we moved to Florida, the numbers showed we where better off renting. It would take 32 years to break even in Florida, and that’s on a fixed 30y mortgage.

    Run this calculator every time you move, and then every 6 months.

  27. GreedSucks says:

    “well I bought a house and sold it 7 months later for $100,000 more than I paid for it…so I would say it was a good financial move.

    And… when I bought my first condo, the mortgage payment was a couple hundred dollars less a month than I would have been paying for rent anywhere in the city. “- BY RAPIDBLUE

    I have had the same experience with renting vs. buying!

    “finds that renting is a much better financial move. How much better? Tens of thousands of dollars better over the course of 30 years.”

    Try and tell this to my wife, our two homes and our savings!

    This is just more lies to keep people from getting ahead.

    Find a rural area by you work and compare rent to home mortgage amounts and you can see quite clearly that to rent is to commit oneself to a life of perpetual poverty.

  28. winnabago says:

    @anatak:

    Show me an example of this where it works outside of these crazy markets when prices are peaking.

    The point is that there are markets where renting is better than owning for the way most people live. Many Eastern US cities (Boston, NY, DC) are close enough that it pays to check the numbers. Also, the example used in the article (Seattle) is another. It says perhaps 4 or 5 times that the information varies by market. Did you miss those parts?

    Oh, and the reason the hot markets are up right now is that their population has been way up over the last few decades, inflating demand. So, this affects millions.

  29. wHATEver says:

    @ChrisC1234: NPR had a story this morning about the re-assessments of houses throughout New Orleans to standardize them, bringing older home valuations up to current market values. The story indicated that some houses that hadn’t traded hands were sitting on 30-year-old assessments, and two houses side-by-side constructed by the same builder could vary in listed value by $400K or more. So the tax portion of ownership looks to be balancing (and moving up for long-term residents) in NO.

  30. MonkeyMonk says:

    @bbbici:

    If i would have bought a house a couple years ago, i would still be stuck slogging it out in a miserable job i hated. renting gave me the freedom to quit that job and land the amazing one i have now.

    While for some of us, buying a number of investment properties over the past decade has allowed us to essentially not “work” at all. Once I started making more solely on the interest from my real estate proceeds than I was making at my job, I quit and became a freelance consultant. Now I work on my terms, at my pace, and I couldn’t be happier. All thanks to owning real estate.

    As others have said . . . your results may vary . . . but as with all studies such as this there is no clear-cut right or wrong answer. Everyone needs to look at their own personal finances, location, tolerance for risk, etc., and then invest wisely.

  31. Mojosan says:

    Funny, I’ve met a lot of people who own a lot of rental properties.

    They are pretty much all smart and wealthy.

    Who would have known they were all buffoons losing money hand over fist?

    When you rent, you are paying the for the complete cost of the property, plus profit, to the landlord. There may be isolated instances where the landlord is “upside-down” , but the median will always be making a profit for the landlord (which is coming out of your pocket.)

  32. @SavageATL: “The 30 year mortgage is a dinosaur left over from Ozzie and Harriet days of one income households who would actually occupy the house until paid off and had a lot less house than people do nowadays.”

    But some of us DO actually intend to stay here until kingdom come. :) (And, incidentally, we deliberately qualified on only one income so that we would not be house-poor. We could afford more than enough house on one income and bought at far less than they qualified us for.)

    Plus we can put the difference between a 15 and a 30 year toward the principle on the 30-year.

  33. brubie says:

    It seems to me there’s a difference between rent that will probably go up sometime in that 30 year time period vs. a mortgage payment that will remain constant for that 30 years.

    Plus, after the 30 years you have no more payment, just tax, insurance and whatever maintenance you decide on. If you are renting you have to keep paying rent the rest of your life.

    Not to mention if you are buying a home and come into some extra money you can put that toward the house and pay it off even sooner. With renting you never stop having to pay rent.

  34. Phuturephunk says:

    It all depends when you bought.

    Using these examples of getting in before peak in any given market is kind of silly because that doesn’t help the people who are trying to buy now.

    The example (forget who said it above) of buying 13 years ago is also not applicable to today. If we expanded that kind of return from now moving forward, houses going for 500K today would have to go for 4 million 10 years from now just to have it match up.

    I personally would not buy in NYC (where I live) right now because one of the biggest things driving these prices are the fucking foreigners exploiting the weak dollar.

    You better hope that never corrects… Then again, I’ve seen irrationality like this before, so we’ll see where this goes.

  35. Hoss says:

    What the article proves most is that it’s economically stupid for someone to rent their property for the numbers quoted.

  36. CumaeanSibyl says:

    Well, I suppose I could’ve continued to rent my 300sf basement apartment with the 7′ ceilings instead of buying a house. I saved a whole $40 per month! Totally worth it, amirite?

  37. SadSam says:

    I think the bottom line is that everyone’s circumstances (financials, housing market, plans to move, retire, etc.) are different so renting is right for some and buying is right for some. I’m super glad I bought property when I did (we own 3 rental properties and one vacant land plus a primary dwelling) and while its a great time to buy right now in So. Fla. I would advise most folks to go with renting until the market gets close to the bottom of its downard trend. We rent two of our rental properties (bought at a discount, one bought before the market increases and one was a foreclosure)out for cost (mortgage, insurance, upkeep and real estate taxes) plus small profit and we take a large deduction on our taxes (helpful in our tax bracket) and we will hold the properties until we can sell at a nice profit. We have a carriage house behind our main house (hisotric neighborhood) that we rent out for about $250 – $400 less than we could obtain b/c we want the world’s best tenant living in close proximity to us. As someone who pays 4 mortgages a month, owning real estate does force one to save, but there is no telling what the money tied up in mortgage payments could do in the market or other investments. As a result, we are happy to have 2 and 1/3 of our mortgages paid by others, we continue to max out our 401Ks, and we invest in the stock market, maintain regular savings in high yield accounts, etc.

    Bottom line, you have to figure out what is best for you.

  38. Skiffer says:

    @SadSam: Exactly, everyone’s circumstances are different and there’s a lot of other factors that go into buying vs. renting…
    For example, now that I bought my own place instead of renting with roommates, there are no longer indoor water balloon fights…

    God, my roommates were annoying…

  39. bbbici says:

    my 1000sqft apartment rents for $800. If i were to purchase a similar sized condo with a 25 year mortgage in my city, the payments would be over $2000, plus property taxes. I still can’t figure out how this will get me ahead, especially as i would have to cut out eating and pretty much everything else.

  40. Thud says:

    The point is to run the numbers for yourself and your situation, but I think his numbers are kind of wonky. For one, he uses tax savings based on a standard deduction. For those lucky enough to be in a higher tax bracket, the interest deduction becomes a lot more significant. He also postulates $354 on maintenance per month. Who spends that much on maintenance??? Maybe on improvements… I owned my first house for almost 10 years, and the total maintenance costs were $3K for heat pump replacement and maybe another $2K over ten years in toilet valves and sink washers. Based on the sales price, which is in the range he was talking about, my maintenance costs were a whopping $42/mo. I’m now prepping my second house for sale. Over the last five years I’ve been living there, my maintenance costs have been a massive $500 for getting someone out to recaulk parts of a flat roof, $300 to get an exterior glass door realigned, and $1.5K to get the exterior windows repainted and recaulked. So, for a significantly more expensive house than in his example, my maintenance costs were in the same $40/mo range. Maybe I’ve been really lucky. But $350/mo = $4200 per year = 1% of home value *every* year. Seems radically high.

  41. wesrubix says:

    @catskyfire: and you can live there for as long as you like (assuming proper payments). Leases are typically 1-year, and you don’t know if you can re-sign every year.

  42. bbbici says:

    Here is an interesting calculator:

    [strategis.ic.gc.ca]

    In my case, if i buy a home I would be $800,000 poorer after 25 years than if i continue renting and investing my savings in medium risk mutual funds.

  43. @Thud: “He also postulates $354 on maintenance per month. Who spends that much on maintenance???”

    I think we might have this year. But ONLY this year. Furnace man, A/C man, Roto-rooter man, plumber twice so far (and swingin’ for a third!), basement man, handyman adjunct-to-the-basement-man, concrete man.

    But it’s an older house and once all this shit is DONE it should last for a good 30 years and we’ll be back to just $98/year for furnace/AC stuff and the occasional plumbing.

    I can see people spending that much in a particularly bad year, or in the first year they own, but as a yearly thing? SRSLY.

  44. timmus says:

    I hear a lot of people quoting the values of their homes now compared to years ago, but that’s just value on paper and assumes you can find a buyer at that price.

  45. mathew says:

    @Timmus: OK, well, I bought an apartment. I sold it 10 years later for literally double the price, and I did find a buyer. Will that do?

    The advantages of owning over renting are:

    1. Predictable payments. Assuming you don’t get suckered into an ARM, you know what your monthly payments are going to be. You won’t suddenly have to move because you can’t afford the new rent, like several people I know.

    2. You don’t have to worry about the landlord turfing you out so you can sell the place.

    3. Decorate how you like.

    4. The tax relief on mortgage interest.

    Sure, it’s possible to find situations where rent is artificially depressed to below mortgage costs… but generally, landlords don’t rent at a loss.

  46. allirob says:

    I don’t know of any renters who got a check for $30K when they moved out of their rental homes. We bought a condo in ’97 and sold it in ’05, pocketing $30K. So all the money I would have spent on rent went into a house payment and we got a nice chunk of change when we sold. How is that NOT better than renting?? Oh, and the payment was only $650/month so was very comparable to rent in the area.

  47. MeOhMy says:

    @timmus:

    I hear a lot of people quoting the values of their homes now compared to years ago, but that’s just value on paper and assumes you can find a buyer at that price.

    Not just a buyer, a place to live for less than that price.

    As my mom always says, “A house is only worth actual money if you don’t need to live in it.”

    As long as you are planning to stay in one place for the next 5 years or so, I can’t imagine renting is better than a smart property investment.

  48. silenuswise says:

    @mathew: “Sure, it’s possible to find situations where rent is artificially depressed to below mortgage costs… but generally, landlords don’t rent at a loss”

    Have you heard of rent control? When I lived in a pricey area of Los Angeles (Century City) during a period of sky-high rental rates (avg $1800 for a 1-bedroom) I was paying $700 a month. Superb location on the cheap, and allowed me complete flexibility when the time came to relocate.

    @allirob: “I don’t know of any renters who got a check for $30K when they moved out of their rental homes.

    And I don’t know of any renters who were wiped out financially when their home went into foreclosure after their ARM reset. Look, it isn’t hard to comprehend a very, very simple concept: whether to rent or own depends on a variety of factors. It’s not rocket science.

  49. humphrmi says:

    @Kurtz: You missed the point. Your landlord will hold back rent increases in your case, but no landlord will rent at a price that puts him out of pocket every month for the rest of your life. With ~$600 left to pay a mortgage on the rental property, only landlords who can afford to buy houses cash will do so, and will be unable to later sell to anyone unless they pay cash. It’s not economically viable, and the numbers used in the example just simply don’t add up.

    And I haven’t even started with the fact that a monthly mortgage payment isn’t an “expense”, it is partly “interest expense”, partly “tax expense”, and partly “owners equity”, which is NOT an expense, it is a cash flow.

  50. JustAGuy2 says:

    @allirob:

    How much did you put down? That would determine whether it was a good investment or not.

  51. allirob says:

    @silenuswise: First, I agree that there are a variety of factors to consider when deciding whether to rent or buy. You are correct in that is not rocket science.

    Second, I would would be very interested to see how many of those people whose ARMs reset and put them out of a home were part of the sub-prime mortage market and should have aimed a little lower when purchasing a home…it does not take a rocket scientist to figure out what your budget is and stick to it when looking for a home. When you look at the apartment and housing rental market in Everett, WA where I live, it is pretty expensive to move in when you need to pay first, last, and deposit. In a lot of cases that is almost a down-payment on a condo right there.

    Third…are you just an angry person or what?? Kinda snippy there in your response…almost defensive…just saying.

  52. allirob says:

    @JustAGuy2: We paid $66,500 with about $3K down, did some work to the place so had a small 2nd at about $15K and sold it for $115K.

  53. humphrmi says:

    @allirob: You hit the nail on the head. The article gives all kinds of examples of losses and not being able to sell at peaks and all that crap, none of which matters if you buy a house and stay in it. The previous owners of the house we own paid around $85K and we bought the house six years ago at $235K. They got back their investment over 20-some-odd years, and today our $235K purchase is would sell overnight for $350K in a “depressed” economy. Sure, it got up to $450K before the downturn, but over time I will get my equity back. You never see any of it again in a rental situation.

  54. zolielo says:

    More bad econ. :(

  55. erica.blog says:

    I bought my house so I could be in charge of what was done to it (e.g., remodeling, painting, pets, etc), not so I could become rich. There’s lots of factors to consider beyond just financial.

  56. The_Tim says:

    Hey everybody, The Tim here, author of the linked article.

    First off, I want to say that part in the lead-in here that says “renting is a much better financial move” paints an inaccurate picture of the point I was trying to make. My purpose in writing the article was not to say “renting is better,” but rather to point out many of the financial factors that should be considered when making the comparison between renting and buying.

    In the Seattle market, renting is the clear winner. No, the rental was not “cherry-picked.” For those of you pointing out that the owner couldn’t possibly be making money, I think you’re failing to consider that the owner could have bought it pre-bubble. You can find many similar rentals around Seattle for yourself if you care to spend five minutes on Craigslist. Market rates for rentals are not set based on what the owners need to charge to profit, but by what local incomes can support.

    In your market, buying may be the clear winner. I’m not going to argue with all of you that are chiming in with counter-examples from your local market. Obviously everyone’s situation is different. That’s the whole point of the article: Figure out the complete financial picture for your unique situation.

    In past markets, buying was usually the clear winner. I’m also not going to argue with all of you that are saying things like “well I bought my house 7 years ago and just sold it for a huge profit!” Obviously it was a lot easier to financially justify buying in a pre-bubble market. Duh.

    Lastly, to everyone making points like “but rent can increase, and a mortgage is fixed” and “but the maintenance is too high!” Increasing rents vs. fixed mortgage costs were factored in. Maintenance was calculated using a (fairly standard) 1% of purchase price per year.

    Thanks for all the feedback, everyone.

  57. rwyuan says:

    I think the running theme, including from the author of the linked article is YMMV ~ best to consider all factors.

    As a perspective landlord, I didn’t buy any properties during the real estate bubble because that market rent couldn’t support the mortgage + profit for an investment property. Part of the joy of buying investment (for rent instead of flip) property is that it is pretty clear if you are going to make money and how much based on the purchase price, loan terms, and tax considerations. There is no emotion tied to the analysis because you will never live in the place.

    For people who are making the rent vs buy decision. It depends on your plans. Generally speaking if you are planning on being in the same place for a long time (five years or more as a rule of thumb), buying is generally better than renting. If you are not planning on being in the same place for a long time, renting is better because real estate transactions are large built-in costs (points, commissions, etc) that are upfront and need to be “depreciated” over a long period of time.

    Generally, rents increase over time which favors the “frozen” payments of a fixed rate mortgage. Generally, home values increase over time which favour ownership over renting.

    Conditions which contradict these general concepts are the use of Adjustable Rate Mortgage (ARMs) that allowed many people to borrow more than they could afford during a period of true historically low interest rates and now the “correction” in interest has screwed a lot of those people. Also in “single” industry markets (like the oil cities in Texas in the late 80s, the aerospace communities in Southern California in the 90s, the the “rust belt” communities in the same period), real estate values can be depressed for an extended period of time as people leave with the dissolution of those single industries. In these markets, it would be advantageous to rent as market rates decline with property values.

    Overall, there is no absolute right choice to rent vs buy. The right choice is dependent on your personal plans and on your local market conditions.

  58. californian says:

    I think some people are taking the argument out of context.

    Just because you bought 10 years ago and now made money doesn’t mean that it’s good to buy _now_.

    The current market is not “depressed” yet. If you bought 5 years ago and sold now, you would make money.

    The question is, should you buy now, or rent+invest and buy in 4 years? If you had 2 identical people and one bought now and the other waited, who would you think would come out ahead?

    In some markets, the renter, in others the buyer.

    BTW, the Bay Area (SF, California) has plenty of properties that sell for $800K and rent for less than $2K. You can check my reply at the Get Rich Slowly blog for references from different sources.

    For the rich people that own multiple rental properties, chances are, they didn’t buy them at the “wrong” time.

    So, in the US there are areas where you should be buying and areas where you should be renting (or selling). If your mortgage is very close to your rent, you should probably buy. If a mortgage would be more than 3 times rent you should probably stick to renting.

    To the people that say that they make money even in this “depressed” economy, the question is not how much money did you make since you bought the house, but how much did you make last yeaer and how much will you make this year. If it’s not that much then new buyers should wait.

    If you don’t know what the trends are, do some research, like from the US Office of Federal Housing Enterprise Oversight, [www.ofheo.gov], check out the report, and see if a change of -4.4% is good for buying (Like Sacramento, CA in the last year). See the House Pricing Index for 2007. See page 30 for bad cities, page 29 for good cities wrt appreciation last year.

    You’re free to read the whole report for a better idea.

    Alternatively you can read the news about mortgage companies [news.google.com] and see how they are doing. Apparently not very good, some are declaring bankruptcy because people are not paying. They took risky loans at the wrong time and are defaulting on their payments. Ask them if buying was such a good idea.

    Summary, run your own numbers. If you happen to live in Wenatchee, WA, I hope you bought, because prices went up by 25% last year.

    And just because on average prices go up, it doesn’t mean that every day is a good day to buy. (or sell).

  59. timeywimey says:

    I get sick of areas too fast (I like change too much) to buy a house. If I ever do buy a house I would rent it out and make money off it. Renting a house out is better then reselling it. Rental gives you residual income over time and more then house selling at one time. Plus if you rent a house out you don’t have to part with it completely and if you want it back you can get it bck when the tenant(s) don’t want to live there anymore. Rental pays for the mortgage and some profit. I wouldn’t buy anything over what I would (in reality) pay in saved money theres a formula to use whether or not it would profit enough to rent it or sell it. All depends on area you live in. Some areas that have more renters than buyers are good but if it’s an area where more buyers are then you might be good to rent if the area has alot of young people. If the area has more established people (specially with kids) then selling is better.

  60. GreedSucks says:

    @GreedSucks: “well I bought a house and sold it 7 months later for $100,000 more than I paid for it…so I would say it was a good financial move.

    And… when I bought my first condo, the mortgage payment was a couple hundred dollars less a month than I would have been paying for rent anywhere in the city. “- BY RAPIDBLUE

    I have had the same experience with renting vs. buying!

    “finds that renting is a much better financial move. How much better? Tens of thousands of dollars better over the course of 30 years.”

    “Try and tell this to my wife, our two homes and our savings!”-former landlord-Edit for clarity.

    This is just more lies to keep people from getting ahead.

    Find a rural area by you work and compare rent to home mortgage amounts and you can see quite clearly that to rent is to commit oneself to a life of perpetual poverty. “