Buy vs. Rent

Adventures in Money Making, a favorite read of mine, brought a an article about renting to my attention. The article, Misconception: Renting is for suckers, gives a rule of thumb for when you’d be better off renting vs. buying a home.

Immediately, I thought, I really have to read this. The general consensus is that it’s best to by if you can afford it. Obviously there’s a price point where renting is cheaper – would you pay $1 in rent/mo. for the home you bought? Of course you would.

I’d say some 95% of the time, the leverage of appreciation isn’t factored in. Simply if you put 5% of a $200K home ($10,000) and it appreciates 5-6% in a year (as homes have on average over the last 40+ years), you’ll have made money to live there. The home will be worth 10K more than you paid for it and your 5% bought some equity. In the meantime, most of your rent is tax deductible. The author claims we should ignore this as it looks like the market is over-priced (what you haven’t heard of the bubble?) He may be right, but if you are in it for the long term (5-10 years), I think you’ll be likely to see appreciation.

I few points that I think the author didn’t address:

• When you buy a home you are likely staying there for 5+ years. For that reason, a short-term market correction is not disastrous. As long as you can make the payments, you can choose to stay there until the market kicks back into gear.
• Rents are going up, so the price you pay today, will probably not be the price you pay next year.
• As great as it is to not worry about repairs (as the author mentioned), it’s equally great to realize that as a home-owner, you OWN something. This plot of land is yours. If you want to change the flooring or paint the walls a different color, you don’t have to ask anyone. When you are a home-owner it feels more like a home than when you are renting.
• “Becoming a landlord can be very financially rewarding and hopefully more people will choose that as an option to first-time home ownership.” So let me get this straight, being a landlord is rewarding AND being a tenant is rewarding? Is there a loophole that I don’t know about? If you live in your property at least you have the tax deductions. As a landlord, you apparently are going to have to deal with all the reasons stated to not be a home owner (property tax, insurance, fixing things, softening home market, etc.)

I see where he’s coming from, and I’m not saying he’s wrong, I just wish I could have seen more statistical analysis