Is It Better to Buy or Rent?

[Inland]

Article on crunching the numbers and the opportunity cost of buying.


http://www.nytimes.com/2005/09/25/realestate/25cov.html?incamp=article_popular_1

But renting might deserve another look right now. After five years in which rents have barely budged while house prices in New York, Washington, Los Angeles and elsewhere have doubled, renting has become a surprisingly smart option for many people who never would have considered it before.

Owning a home often ties up hundreds of thousands of dollars that might be invested more safely and more lucratively elsewhere over the next decade. And while real estate brokers may hate to acknowledge it, home ownership involves its own versions of throwing money away, like property taxes and the costs of borrowing.

[Art_from_Ark]

1. They both have their advantages and disadvantages

If you rent, you're not stuck with an illiquid asset, but you are at the mercy of your landlord. Here in Japan, I've rented 3 places that I had to move out of because the landlord wouldn't-- or couldn't-- renew the contract. Afterward, all three places were torn down to make way for more profitable dwellings. Now they are tearing down the apartment house down the street. Will my current place be next?

If you own, you have more freedom to do what you want with your place, but you have to pay property taxes, and maybe homeowner association membership dues. It is technically your place, but if you don't pay the mortgage or your property taxes on time, you could lose it. Also, if you have to move out of town because you lost your job and nobody's hiring in your area, it can take a while to find a buyer for your house. One of the houses in my neighborhood was for sale for at least 2 years before someone bought it.

Of course, if you take the money that you could have invested in a house, and lose it in a risky investment, you have nothing to show for your money.

[pitohui]

2. it is better to buy

it is naive to think you are going to find an investment better than yr own paid-off home if you are in a class w.out connections, which you are if you're worried abt renting vs. buying in the first place

if you want to succeed, look at what successful ppl do & emulate them

successful ppl are overwhelmingly the owning class, they are not the renting class

if you rent, you pay forever, if you own, when you are older, you have no mortgage & suddenly you can live well even on a tiny social security check, when i look at older ppl, the difference bet. those who have good lives & those who struggle is the paid-off home, if you are old enough, you can even get a reverse mortgage on the home

[lildreamer316]

3. I am lucky..

I inherited not one but TWO paid off homes. Coming straight from renting I can tell you that it makes SUCH A DIFFERENCE. BLESS my parents for working so hard to provide me with the easy life I now have.(I'm 32). The jump on saving this has given me is incalulable. I hate to imagine what it would be like to have to pay mortgage on both...we would be working so hard.But at least with mortgage you can see a light at the end of the tunnel; you know?

[AngryAmish]

4. Homes - buy, sexual partners - rent

That is all.

[SlipperySlope]

5. An important lesson I learned from a book...

In the long run, prostitutes are always cheaper than affairs.

[Inland]

22. I thought it was rent second home, rent second sexual partner. nt

[skipos]

6. I have always read

that it makes more sense to rent if you are going to live there for under 5 years.

[MildyRules]

7. And if you move every 4 1/2

years, 30 years down the road, you'll have nothing. Sooner or later you GOTTA buy (if you can afford it).

[wuushew]

Home ownership has a larger environmental footprint

The insistence on having a lawn and X_size car garage contributes to sprawl more than higher density rental properties.

I suppose the truly wise buy condo properties.

[CornField]

9. But there are other impacts

Home owners are more likely to plant trees -- to spend time (instead of heading straight for chemicals) on stubborn gardens and lawns. Home owners are more likely to weather-proof and close off areas of their homes not immediately needed.

There are trade-offs, but I don't think you can point only to urban sprawl as the only output of home ownership.

[wuushew]

11. Not all rental properties are dumps

Apparently very large tax incentives exist to encourage renovation of existing properties. When I rented in a college town the local land baron was continuously replacing his old properties and generally they had a modern construction materials and techniques incorporated into them.

[ultraist]

16. Landlord tax loopholes

Whenever a landlord can show a loss, often expressed through rental income vs. high carrying costs, with a focus on high maintenance costs, it's beneficial for tax reasons.

[CountAllVotes]

19. every place I ever rented was a dump

In fact, one ended up being condemned thanks to me. :D

I go for broke with these greedy assholes.

A dump is a dump is a dump is a dump.

You get a nice place if you have a couple of thousand + to pay for rent maybe.

I own my own home now. No one can take it nor the land it sits on away from me as long as I pay the property taxes.

Maintenance is a bit of a drag admittedly, but improvements done recently have increased the value of this small house I live in by about $50,000+.

The best investment you can find is a house IMO, even if you opt to not live in it and rent it out.

:kick:

[Inland]

23. I don't think there is any connection.

I think that the article presupposes that you are renting the exact same type of property you were thinking of buying. Comparing apples to apples

That is, the people that are looking to buy homes as investments are looking to rent them. When looking for a place to live, should you a) bid on the purchase in competition with them or b) let them have it and rent it from them. You end up in the same place.

[wuushew]

8. delete

dupe

[WilmywoodNCparalegal]

10. I agree about buying, but...

I don't know how people are able to buy in this over-inflated real estate market. Paying the mortgage is not the problem; coming up with the down payment for a $200,000 home is... Sure, there are some O% down programs, but closing costs? other expenses?

In certain markets, such as the one I currently live in (NYC), the median cost for an apartment is $1.3 million. How can an average-income couple get enough cash to purchase a place for this much money?

[Inland]

26. Well, the point of the article is, maybe you shouldn't.

Rents have stayed steady while prices have skyrocketed.

[thinkingwoman]

28. It depends on the market

where I live rents have skyrocketed while mortgages on first homes of dropped (due to lowered interest rates over the past few years)...so it's exactly the opposite of what the article states.

Of course, I don't live on one of the coasts. ;-)

[Inland]

29. Krugman made a distinction

I forget the words he used, but it was coasts, where people need to stay near urban areas and want to stay near the water, and the great undifferentiated interior.

I'm somewhere inbetween, being in the Chicago far western suburbs. People need and want to be near the city/lake/nicer interior suburbs, but will only pay so much as there is always a development further out as a choice. That keeps prices down in my area.

Remember the first three lessons of real estate: location, location, location!

[thinkingwoman]

31. Aha...my bad

for not reading enough.

I haven't been to Chicago in a while...wonderful place in the summmer, but too cold for my tastes in the winter. Beautiful though.

Hey, are they still renovating urban Chicago neighborhoods into trendy yuppie loft nests?

[Inland]

32. Well, it's more than that, but yes

The changes have been pretty consistently dramatic for the last twenty years. Renovation, but also completly NEW neighborhoods in the place of warehouses, trainyards, etc.

[Booster]

12. Best thing I ever did in my life was to buy my first house. It was

certainly not my dream house, but it cost $54,000 in l976 and I sold it 5 yrs later for $185,000. I have since bought and sold 8 houses in the L.A. area, and am now retired comfortably. I made a lot of money on each house, except for one, but the thing I learned was that after that first house I never had monumental money problems; if I wanted a new car I either took out a credit line on the house so I could write the car off on my taxes, or I refinanced if the timing were right, and took out equity and paid cash for the car. I have not had a single car payment since l980, so my advice is to always, always buy if you can, but remember your first house will not be the one you want. I would decide on a price for a house and would not let my agent show me anything above that price, cause I knew I wouldn't like the house I could afford to buy if I looked at the higher ones. Definitely buy.

[CountAllVotes]

20. I bought my house for $85,000 in 2000

now it is worth close to $300,000.

Tell me of a better investment ... there is not one to be found. And no, I have no plans to move anytime soon.

:kick:

[Inland]

25. That was then. This is now.

Obviously, your choice to buy in 1976 was the correct one. But the lessons of then don't apply to now. If you graph out the increase in house prices nationally, you'll see that there's been a fairly steady growth until the last couple years when its taken off like a rabbit.

If one presumes that the growth rate will stay on the level of the past two years buying is a great idea; if it returns to the long term growth rate, it's a good idea; if it drops ten percent, it may be a mistake.

And national trends have little to do with the parcel one has their eye on. Location, location, location.

[noonwitch]

13. If you are over 35 and have never bought a house, you should buy one

When the economy is poor, you will still have the house and the equity you build up.

[shanti]

14. buy

but not everybody thinks this. my parents bought several homes, and i always expected to own (and i do). however, my best friend's parents always rented and she really has no desire to own at all. she is 50, single, and has no children, while i am also 50, single, but have children.

i didn't buy until i was 40, but my reasoning for doing so was that i wanted a HOME for my then 4 yr old son and something to leave he and his brothers when i die. i also wanted a YARD and pets. neither of my exes owns a home, so it was up to me.

HOWEVER, it's darn hard to do this on my own, even with the small size of my home. everything is done by ME, and there's always something that needs fixing.

all in all, i'm glad i did it 10 years ago and not now!

[natrat]

15. i know it wont happen but a housing crash would rock for those left out

all these smug bastards living on refi money from 5o year low interest rates may get a little dose of reality. And god help any of them who have adj rate or interest only loans when rates back up and incomes dont rise to match---dont mind me i'm just envious

[ultraist]

17. Definitely buy if you can

Unless you live in a housing bubble, in which case, it's better to wait to buy when the artificially high prices come down. Bubbles are regional and neighborhood specific so it's important to do a market study, prior to buying. Even in LA, that is known to be experiencing a bubble, there are still good investments to be had in certain neighborhoods.

Renting is a waste of money, IMO unless you are very transient and must move every year.

[never_get_over_it]

18. Obviously it depends on

the housing market where you live and your financial resources but in my mind renting is not a good idea

When you rent you give your money to someone else and NEVER get it back - when you own you are paying a mortgage and giving alot to the mortgage holder but also building equity through paying on the principle and appreciation.

My advice do not do interest only loans (if you can help it) I believe they are a complete scam

Try to get a 15 fixed mortgage if you can afford to - this is one of the quickest ways to pay down the principle and build your equity

Make an extra mortgage payment a year - or add a little to the principle each month

Also my sister and I have often had a discussion about paying off a mortgage because you no longer have the tax dedcution - my answer to that is I use to pay 12K in interest to get 3K back in taxes which meant I was down 9K - so work towards paying off your mortgage as aggressively as you can

I bought a townhome in the DC metro area in 1991 for 130K - single and believe me at my income at the time it was a bit of a stretch - but I first got a 30 year mortgage and then when I could refinanced what I owed only and not more to a 15 year - I made extra payments - and when I sold the house for alot more than 130K last year I only owed about 50K on it - buying that townhouse and working to decrease the principle was the best financial decision I ever made.

And one more piece of advice for what its worth - PLEASE if you can help it don't refinance your house and take out equity - people are getting themselves in big trouble by refinancing at or near the new appraised value of the house and basically starting over and losing all that equity that would have been a great assest as they move towards retirement.

[MsTryska]

21. as it stands...i love renting.....

i'm able to save tons of money, live in a great hassle-free place, and don't have to deal with maintenance.



and i certainly wouldn't buy in this market. i'd rent and save up a down-payment, so when the market crashes you can have your 20% to put down on a nice, recently reduced number.

[SeattleGirl]

24. Yeah, I won't buy right now

Housing prices are way too high right now! But eventually I want to buy, just not right now.

[natrat]

27. i live in the bay area and i have been waiting for the market to cool for

7 or 8 years. Oops. Right after 9/11 it paused for 6 months and that's about it. Whatever. Given the level of mortgage payment to rent payment now it's really not that bad. Not much of an investment though.

[Inland]

30. You may already be seeing it.

I heard there was a price drop in San Franciso reported for July.