DISQUS

Thermopyle · 2 years ago

I always make a ton of money off my homes. I say "homes" because I build my own house as a general contractor and sell it after two years.

fivecentnickel.com · 2 years ago

Keep in mind, however, that rent is an ever-increasing thing, whereas house payments (aside from taxes and insurance) are locked in. Don't you therefore get ahead of the curve over time when you buy a home (assuming a fixed rate mortgage and no re-financing to reset the clock)?

5/7/07 spin on the Blog Carous · 2 years ago

[...] Consumerism Commentary takes up the discussion on how renting makes you richer. [...]

Kevin Gunn · 2 years ago

There's some truth in the analysis -- but the counterpoints are good as well. However, both sides look to be referring to a house purchased on a 30-year mortgage.

First, a 15-year mortgage will likely run a quarter point lower than a thirty. Yes, the payments are a little higher per month (around 25-30%), but you pay under HALF as much in total interests payments.

Example: On a 6.00% 15-year mortgage for $250K you pay a total interest charge of $129,736. Pick a 30-year for the same amount and you'll pay 6.25% and a total of $304,148 over the life of the loan. OUCH!

The best option in my opinion is to get a 15-year mortgage rather than renting. Of course, it is also very important that you stay in the house since the early years are still mostly interest. If you are going to move every 3 years -- RENT: you aren't accumulating any real equity plus you're paying the costs of buying and selling and maintenance. If you are staying put, however, you'll come out ahead if you buy no more house than you can afford on a 15-year mortgage. 30-year mortgages are a terrible waste of your financial resources.

Lazy Man and Money · 2 years ago

There's a lot of talk about that "American Dream." I wonder if the people getting their homes foreclosed feel that it's a little more like the "American Nightmare."

Dave · 2 years ago

Never buy? Pay rent for your entire life. Buy your home? Pay it off in 15 or 30 years, and then live free of rent and mortgage payments for the REST OF YOUR LIFE, as do any heirs to whom you pass the house (estate taxes and property taxes being separate issues).

And tax breaks help not only with buying, but also selling: keeping most or all of your capital gains on your primary residence.

As with most things in life, renting can make sense for short-term needs or when lifestyle changes happen or career uncertainty exists. But long term? Buying once instead of paying for it over and over seems to make more sense.

But the true $$$ criteria is after-tax discounted cash-flow qualified by individual tolerance for the risks inherent in both renting and buying. The after-tax discounted cash-flow is what real-estate moguls (not speculative house-flippers gambling on a bubble) use to evaluate purchase of a property they intend to hold onto.

Gal Josefsberg · 2 years ago

This is a question my fiance and I are now struggling with. We've done the math and in, in our area, houses are slightly behind stocks if you look at them as a pure investment. However, there is something to be said for owning your own house. You get to make your own decisions on things like appliances, wood floors vs. carpeting and so on. Also, rental units will typically not be as nicely decorated as something you do on your own. Finally, rental units come with rules on things like pets or # of cars. So it's not just down to a pure money comparison.

All that said, we're still trying to figure it out. Right now, we're probably going to rent for a while longer while we look around, see what's available and decide on what we really want to do.

Gal Josefsberg · 2 years ago

Dave, that's only true if you never invest your money. For example, I can make a 20% down payment or I can take that money and invest it in the stock market.

Yes, I could live in my own house rent free in 30 years. Or I could rent a house but have that rent be paid for by interest from my investment 30 years ago. Either one makes financial sense. Just need to run the numbers.

Melsky · 2 years ago

Though house payments don't go up, property taxes frequently do. If you own a condo or a property with homeowner association dues, they will increase, and sometimes owners are hit with a special assessment when there's something like termites, plumbing problems or lawsuits. So being a property owner does not make you immune from rising costs.

I plan on using a fifteen year mortgage when we eventually buy again, but for now we are renting and enjoying adding to our savings every month and going on weekend trips and letting our landlords stay here and fix the leak above the bathroom window.

Thermopyle · 2 years ago

I have to agree with Dave. Pay off your house. Then you have whatever it appreciates in value + a huge chunk of money each month to invest that would otherwise be going into rent.

Andrew Gearhart · 2 years ago

They key isn't paying off a home or renting... the key is making sure that whatever assets you are generating on a monthly income are at their most "available" level as possible. For many, that can be done in short order with a mortgage. Others, due to life-chance uncertainty such as career change, are much better suited to rent an apartment or a single family home.

There are many things that can be reduced to "simple maxims" to live by. Rent vs Buy isn't one of them due to the extreme number of variables including non-quantitative personal opinion that enter the equation.

Flexo · 2 years ago

Andrew: I couldn't agree more; life and finances aren't simple and rules of thumb of any sort cause more problems than they solve.