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)