This is a guest-post from Tim Ellis, author of Seattle Bubble, a blog and forum dedicated to discussing real estate market conditions in the Seattle area.
“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.”
You’ve probably heard statements like these plenty of times. On television, radio, the internet, and in casual conversation. Such sentiments are common in any discussion that involves home-buying and personal finances. It’s common knowledge that buying a home is a better financial move than renting. After all, you’re building equity instead of throwing away your money, right? Well, maybe not quite… Rather than assuming the “common knowledge” on this subject is accurate, let’s take a look for ourselves at some of the financial differences between renting and home-buying.
A Real-World Example
For the purpose of comparing renting to owning in this article, I’ll be using real-world data gathered from my area (northeast of Seattle). Although most first-time buyers tend to move from renting an apartment to buying a larger, stand-alone house, as much as I can I will compare apples to apples.
- For rent, I located a 3-bed, 2.5-bath, 1,840 sqft house with an attached 2-car garage, on 0.2 acres. Monthly price: $1,495.
- For purchase I found a 3-bed, 2.5-bath, 1,850 sqft house with an attached 2-car garage, on 0.22 acres. Price: $424,950.
The two homes are located within two miles of each other in similar neighborhoods, and neither is located on a busy road. We’ll assume that our hypothetical homebuyer is a married couple with $85,000 in the bank to make a 20% down payment. To calculate mortgage payments we will use a recent 30-year fixed interest rate of 6.25%.
Let’s look at how the monthly costs break down (approximately) for our hypothetical potential first-time homebuyer:
| Renting | Buying | |
| Rent/Mortgage: | $1,495 | $2,093 |
| Insurance: | $20 | $163 |
| Property Tax: | - | $407 |
| Tax Savings*: | - | ($327) |
| Maintenance: | - | $354 |
| Total: | $1,515 | $2,690 |
*: (less standard deduction)
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.
“If you rent, you’re throwing away your money.”
Common knowledge says that despite today’s large premium, buying a home is a “good investment”. Hey, at least you’re not “throwing away” your money, right? True, the renter in our scenario spends $1,515 every month that they will never see again. I wouldn’t exactly say it has been “thrown away” any more than money spent on any other good or service is “thrown away,” but granted, there is zero financial return on that money.
However, when you take a look at the breakdown of the homebuyer’s monthly expenses, a large amount is money that will never return, either. Insurance, property tax (less tax savings), and maintenance, add up to $517 every month that is being “thrown away.” Even worse is the amount spent on mortgage interest. Consider how much of a mortgage payment is applied toward loan interest throughout the life of a 30-year fixed loan:
| Years | % toward interest |
| 0-5 | ~80% |
| 6-10 | ~70% |
| 11-15 | ~60% |
| 16-20 | ~50% |
| 21-25 | ~35% |
| 26-30 | ~10% |
In the first five years, approximately 80% of the mortgage payment goes toward interest. That’s an additional $1,674, for a total of $2,191 being “thrown away” every single month by the homebuyer for the first five years. Ouch! 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.
“Owning your own home is a forced savings plan.”
As you can see above, if home buying is like a savings plan, it’s probably the worst savings plan on Earth. Would you voluntarily sign up for a savings plan where well over half of the money you deposit in the first 20 years simply vanishes, and from which you can only withdraw money by relocating and paying a 6-9% fee (not on the amount you have “saved” mind you, but on the total sale price of the home)? Of course not. That doesn’t sound anything like a savings plan.
If our potential homebuyer has that $85,000 saved up for a down payment and deposits it along with just half of the monthly savings over buying ($578 per month) into an account at 8% interest, the balance will be nearly $300,000 in just 10 years. That’s a liquid investment, that can be used for whatever you want, no relocation required. Buying a home is not a savings plan. Actually saving money every month is a savings plan.
“Home ownership is an excellent path to build wealth.”
If your goal is to build wealth, you will be much better off investing your money in the stock market than buying a home. While both stocks and housing are cyclical markets, long-term historic trends show that housing appreciates at a rate barely above inflation, while stocks tend to return an inflation-adjusted 7-10%. 
In our hypothetical scenario, a renter who invested in the stock market with the $85,000 down payment plus the monthly difference between the $1,515 rent and the $2,690 home-buying costs would be over $500,000 better off after 30 years than the homebuyer, assuming 4% average appreciation.
An important thing to consider is that home prices in the United States are just now beginning to correct from an enormous unprecedented run-up in recent years. Despite what those in the business of selling real estate may insist, the correction in housing is still in the early stages. Four percent is most likely overly optimistic for most areas in the next 5-10 years. The only thing we know for sure is that double-digit gains are gone and won’t be coming back any time soon.
Also keep in mind — I mentioned it above but it bears repeating — in order to cash in on any “wealth” you build through your home you will need to sell that home and move. No, “extracting equity” does not count, since that simply results in a larger debt. Debt is not equal to Wealth.
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.
Don’t misunderstand me here. I am not saying that no one should buy a home, or that my example scenario is a golden standard of truth for all. Don’t take my word for it. Run the numbers for yourself, check out other articles (a small collection is listed below), and do what works for you. I highly recommend the great graphical calculator from The New York Times for comparing the financial aspects of renting and buying. Many people will consider all of the consequences — financial, emotional, etc. — and conclude that buying a home is the best decision. Just don’t trick yourself into thinking it’s a good financial decision if it’s not.
I myself intend to buy a house some day. However when that day comes, I will be buying a house because I want a nice, “permanent” place to live where I’m the boss, not because I think it will help me get me rich.
Additional Resources
Wall Street Journal: Your Home Isn’t the Nest Egg That You May Think It Is
New York Times: A Word of Advice During a Housing Slump: Rent
New York Times: Is it better to buy or rent? (graphical calculator)
The Motley Fool: The Worst Investment Ever
SmartMoney.com: Renting Makes More Financial Sense Than Homeownership
CNN Money: Stocks vs. Real Estate
Priced Out Forever: Renting vs. Purchasing
This article is about Choices, House and Home
SEARCH FOR RECENT ARTICLES
I look at a house as a place to live, nothing more nothing less. The payments never stop, of course, the maintenance, taxes and insurance must always be paid. Financially, I would come out on top renting. Mentally, I come out ahead owning because of the privacy that it brings. When I say own, I mean an actual DETACHED home, not a condo.
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Sorry I haven’t read all the comments, so this may be covered by other writers, but…
You math only begins to get at the real costs of home-ownership. To build a more accurate picture, start to factor in all the “externalities” like the garden make-over, the ‘smart’ controls, the total kitchen renovation, all the new furniture and new fixtures and appliances that you simply must have. And many of these will be recurring expenses over a 25-year period as tastes, appetites, use of space, etc. change. Few if any of them will get you one extra dollar when and if you sell.
Add up all of this, and you know it comes to additional hundreds of thousands on the expense side, only a tiny fraction of which would be spent in a rental scenario.
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We rented for $600 a month and then bought a $150,000 (3 bed, 2 bath in an excellent school district) house with a monthly payment of $1000 (that includes real estate taxes.) The house is 4 times bigger than the apartment.
I think rent would be around $1000 for a house our size in the area we live (Ohio)… We got a 15 year mortgage too… I think you should calculate the expense of renting vs. buying for me! I bet you would get a different picture than the one listed. My situation would make the picture you’ve written about go the other way and show a different side of the whole thing.
BTW, my house is probably worth what we paid for it in 2002, kind of sad, but I feel thankful we have not lost money like so many others.
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Rent vs buy? Ah, what are my choices? Well there is rent or rent? I rent cause I have no other choice. I can’t even buy a mobile home where I live.
Once again another post GRS post that reaks of higher income arrogance.
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Gene, of course you could have the “renter’s mentality” when it comes to your own house too.
You could not paint it when it needs it. Not do larger landscaping projects on it. Etc.
As I stated to my wife the other day. We could sell our house, pay off our one and only mortgage, and pay cash for a house in the area that she grew up in, not to mention we would be able to do the landscaping you mentioned, etc. However, it’s not the best of areas (although it’s also far from the worst of areas too), and it’s not where we would like to raise our children either. We also didn’t paint anything in the house for the first 2 years after moving in (and it was builder’s grade paint). We also didn’t get more or updated furniture for the first 4 years that we were there. We did however choose to save our money up for those particular items and pay cash for them.
You see, having the want/desire for something doesn’t mean that it will become a need if one has better fiscal controls than a lot of people have.
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The issue here is that not every market is Seattle. I live in Pittsburgh. I bought a 2 bed 2 bath condo with about 1100sq ft when I was 23 years old for $95,000 in 2007. I put 10% down since my credit score qualified me for a ridiculously low MI payment. My mortgage payment was $515 per month (adding in HOA dues, MI, insurance, and taxes the total was about $875). The HOA dues took care of lawn maintenance, and also paid my water, trash and sewer bills. It needed some work and TLC, which I had money to do since I put a lower down payment. I like to fix things and remodel, so it was fun for me as well. My house is now worth $10K more and is under contract to sell.
A comparable 2 br/2 ba was just rented in my complex for $850 a month. So I spent $25 more per month, had the gratification of remodeling a bath by myself and shopping for discounted When all is said and done I will get a check which is 1.5x more than what I’ve put into it, which will fund the 20% downpayment of my next home (another fixer upper).
It is all relative to where you live. I suppose I “threw away” money since I paid about $550 in interest and taxes per month that essentially went towards nothing, but that is much less than what I would’ve “thrown away” in rent. In Pittsburgh it makes absolutely no sense to rent because housing prices are so affordable.
Another random note: A yearly home warranty costs about $400. It is essentially insurance against anything major going wrong in your home. If your A/C unit breaks, you pay a $50 deductible and they replace for you, which saves thousands. So the homeowner can buy this insurance policy against mechanicals, have a regular insurance policy (which are typically dirt cheap- my condo insurance was $18 per month) and pretty much live worry-free.
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165,000 house… 154,000 in interest payments. Essentially for the next 30 years you are renting your house from the bank. That is money you will NEVER recover. That is an additional $472 you pay out every month to have the ability to paint your walls, perform maintenance (more costs), pay property taxes (more costs), and higher insurance rates (more costs). That of course is if you stay in that house for the next 30 years.
That 165,000 house just cost you $319,000, not including anything else.
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TNK, the property taxes argument is moot, along with insurance rates and basic maintenance costs. You may not directly pay the property taxes, but your landlord is. Likewise, they are also paying insurance on the place, and they are just passing that cost on to you via any increased rent.
Of course if they are doing their due diligence, when they are just starting to rent a place out, there is still a decent buffer between what it costs them to keep a place (i.e. pay mortgage … if any, property taxes, any utilities that are agreed on in the rent, and the insurance to cover the bank’s interest in the property, and provide a certain level of maintenance on the place).
You are accurate on the being able to paint the walls part (although my old landlord did allow me to do that if I wanted … as long as it was a flat “bone” color when I left). And perform extra maintenance on teh place.
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I used to live in SF/Bay Area where most hi-tech peons dont make enough to qualify for a loan to be able to (Even with 80K down) afford to buy, so what did they do with the 80K that mommy and daddy gave him/her after college for a down payment on a home? They didnt invest it. They bought a $75,000 Range Rover and a Rolex watch and go out every night spending all of their money living paycheck to paycheck partying it up. (I know some of those people were my friends) There are so many variables here that either or can make sense depending on ones earning and spending habits. If I had to rent the house I currently live in (Portland OR)I would pay just about as much in rent as I would what my mortgage is. Rent here isnt cheap (Which surprised me) This is only after 10% down, so you dont need to cough up 20% or more just to own a home and pay a nominal amount of mortgage vs. renting that is easily around the same price here. If I die in my home after its been paid off at least I didnt have rent to deal with or landlords that might need to kick me out for whatever reason. and what about if the landlord decides to sell? You are always at the mercy of what a landlord will or wont do. Toilet broke? Call the landlord, maybe he’ll fix it when he gets around to it. No matter what, you are always stuck with the same way the house is when you moved into it 10, 15, 20 years later because you know as well as I do that the landlord will not do any remodels nor will you since you dont own the home. If you can live with that 1950′s, 60′, 70′s or 80′s carpeting and fixtures, and ineficient appliances (You pay more in heating and electrical bills – throwing more money away) more power to you! Moving sucks and being a renter pretty much guarantees that you will be forced to move several times not to your own doing. Renting blows unless you are single and live in manhatten where most people cant afford to buy anyhow. If you have a family its soooo different. Kids do kooky stuff, and you will be paying for maintainance on a rented home so dont forget that either. There are just way too many varibales and scenarios on ones habits, family living situations etc. to say that buying or renting as better than one another. This article is just plain stupid ignorant to say such a thing.
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So do all the lettings lose money in your area? Since the mortgage payments are $600 more for the same house, the poor sod who owns it to let to you – and presumably has to pay the same property taxes and maintenance – must be going bankrupt pretty soon…
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Hi! Great Article, You point out many of the facts which landlords do not point out when selling a rent to buy scheme, which I think buyers need to know! But have you considered the fact that when owning your own home you are given a bit more freedom when it comes to ‘personalizing’ your home, and also there is no worry about being kicked out of your home, the landlord selling up, etc. I would want to know bringing up a family that I am not going to be suddenly told I have 2 months to move!
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It really just depends on where you live.
I went from $685 a month (rent) to $674.65 a month (mortgage including property tax) while increasing from 1200 square feet to 1500 square feet. This is a 15 year mortgage at 4 3/8%.
I now get to pay less per month to have more space and not worry about noise complaints from downstairs neighbors. I do not have to deal with the apartment management telling me the A.C. is functioning as expected on a hot 102 degree summer day when it only cools down to 92 degrees inside!
I am sure a lot of places the demand for a house drives price up higher than renting.
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I have owned and in my experience, here are the many problems with buying. Almost everyone has money wrapped up in the home that cannot be touched without interest and closing costs. Buying a home always results in closing costs including usually transfer taxes (and you can ignore them all you want but you do not get them back). Over the years the maintenance costs add up significantly. Many people overestimate what they think they made when they sell not to mention why buy and live there and then move ?? Where are you going now? Moving in and out of homes (with all of the closing costs, moving costs, time in between etc… involved rarely pays off). And staying put means your initial costs just sit there in the home. With all of the various expenses, even buying cheaply means about a 1-3 percent per year increase (eventually maybe) which is not nearly as good as 7-10 percent per year if invested wisely in the stock market which can be bought and sold as needed with a simple click of a mouse. Oh, and I don’t need to put a new roof on the mutual fund.
Finally the so-called tax advantages of buying are VERY overstated. You can NOT add in your standard dedeuction if compared to renting (means over 7,000 lost for single and over 10,000 lost for married couples) before you see any advantage to buying not to mention you only get back avg. about 27 perecent of that. Many cannot use any at all because they don’t exceed the standard deduction a renter gets anyway.
Do not look at the “great” sounding scenarios, look at the averages. And don’t forget real estate taxes keep going up. Living in your home is usually never free.
And if something happens “bad” for you and where you are living it is a lot easier to move from a rental than from something you own.
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Very interesting topic and I enjoy reading almost all the comment. Renting has it’s ups and down and buying has it’s up and down. I’m 22 years old right now and I am planning to buy a house when I’m 23 or 24. I don’t have much experience on how thing works but here’s what I think. I feel that in the long run, buying a house will benifit you more than renting a house. Yes renting is like throwing your money out the window. That’s the bottom line. I will not go into detail but that’s the fact. Buying a house vs. renting…. buying wins… period.
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“Yes renting is like throwing your money out the window. That’s the bottom line. I will not go into detail but that’s the fact. Buying a house vs. renting…. buying wins… period.”
I saved $300k to $400k to $500k CONSERVATIVELY over the last 8 years by renting instead of buying…. I saved $200K + in just interest even at an impossibly low 5% interest-only rate. I would have thrown twice as much “money out the window” buying versus renting just on interest versus rent payments.
In terms of house value, if I bought now I would save at least $200k to $300k on the purchase price.
If one wants to talk about possible equity if I had paid more, that factors out because whatever I would have put in I still have.
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So far no one has mentioned the possibility of saving most of your money for 5-10 years (the difference between renting and buying) and buying a home outright with cash. For some this may be the best of both worlds as you can buy a house closing to present day prices and still avoid the disadvantages of buying a home (the interest payments). Some may argue with the risks of such a large cash investment, but it may be a viable option. Don’t think it is possible? Crystal at moneysavingmom.com has done just that. She has a few posts on her family’s accomplishments and they really are quire inspiring.
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ES,
I thought I had mentioned something like that in one of my previous posts (although I could easily be wrong).
I know of 2 people that saved up $92,000 and $115,000 and paid cash for a house that they love. And they did it while they were renting (and the $92k house couple had 2 children while they were renting).
All in all, you are correct. There’s no reason that they can’t save up a large chunk of money to put down or pay in full for a house.
Sometimes it depends upon the person’s wants aside from their obvious needs (roof over their head). Some people choose to lease a vehicle, I however choose to buy mine (and run them into the ground … or at least into the junkyard to get $200-$400 for them after 10+ years of use).
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‘I purchased a condo for 62K, and continued to pay mortgage and taxes consistent with what I would have paid to rent it. Sold that condo 5 years later for 148,500′
In many places in the country the numbers would be reversed. A house is a place to live not an investment.
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I bought my home in 1992 when I was 25. I put down 30 percent because I couldn’t qualify for anything less. I worked really hard for years cleaning houses while I saved up for the down payment instead of going to college. (I don’t clean houses anymore, I just did that while I was very young because it paid good money!) I wanted a home because I believed it was a great investment. My grandfather kept telling me that.
Fast forward to 2010: My mortgage payment was only $485 this month. I live in a beautiful neighborhood! All my friends who went to college first have a small home and are paying $2,500 a month on their mortgage or more. My home is nicer, btw!
I went back to college a few years ago. Now tell me, who got the better deal? My home is 80 percent paid off, and I have about 200k equity in it. I dunno about you, but as silly as it sounds, I think I did something right. In Florida, property taxes don’t go up go up very much if you lock in early. So my neighbor might be paying 7 or 8k a year in property taxes because he bought his house about 5 years ago, but I’m only paying 2.2k a year. Go figure. I even took in a roommate over the last 15 yrs., so whatever I made from them (sometimes I had a few people living here), I used it toward the mortgage or went on vacation, etc. It worked out great because I had a babysitter every time I went somewhere and I never had to dish out any money toward a mortgage payment! I hope this piece of wisdom helps those who are considering buying a home. In 15 years from now, homes and rent could be much more. That’s what I kept thinking to myself as a teenager, so I started saving up right there and then. A few ignorant people tried to talk me out of buying a home at such a young age, but I didn’t listen. I was adamant about buying a home when I was a teenager! In fact, my grandfather forced me to save up money when I was a teenager so I could own my own home and car when I got older. I have to admit I was upset he was charging me money to live with him (he wasn’t poor), but he told me one day he would return it. He just wanted to teach me how to save money and invest it wisely, so I could have something in life. I’m glad I took his advice! 
I don’t think buying a home during the housing bubble was a great idea though. My neighbors across the street who purchased their home for 440k during the bubble have a home that is only worth approximately 250-275k at the moment. From 2005 to about 2008 was a terrible time to buy a home, but that’s not the norm. If you can buy a home and don’t get a loan that is interest only, get a fixed rate and put at least 25 or 30 percent down, you will be better off! Take in roommates. I’m telling you for the first 15 years I lived here I never paid any mortgage!.And I have hundreds of thousands of dollars in equity to my name! You can’t beat that, unless, of course, you win the lotto!
I just happen to have had this crazy idea to get a home when I was really young, and it paid off!
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That may have been true over 2 years ago when this article was written, but not today.
Hubby and I are buying a house for $185K (foreclosure) in Long Island, NY. The house has been appraised for $250K. Our monthly mortgage (including taxes and insurance) will be $1300 for a 3br/2ba house with a large yard. If we were to rent a similar sized place in a similar area, it would run us at least $1800, plus utilities.
We are so happy not to have bought a home during the high market…it’s been a disaster. We waited until we could afford something on my husband’s salary only. Now I will be working and my salary will be dispensable. Tell me there isn’t any value in that.
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I went through the same experience, house shopping over the last year. How much will the mortgage be, plus all of the hidden expenses and savings? In order to break through all of the complexities of paying a mortgage, I wrote TrueCost. TrueCost is an iPhone app that gives you a single value – the adjusted monthly cost of owning a home as compared to renting. I really think it cuts out a huge amount of uncertainty in the mortgaging process.
BTW we ended up renting a house on 2.4 acres listed for $360k for $1250/mo. Much better than the mortgage, much better than we could have found anywhere in the same metro area. It obviously wasn’t our time yet to buy a place.
Unfortunately the fantasy that putting your money into a nice little 7%/yr investment has dried up along with the housing bubble. If you want a nest-egg to retire on, better get to work innovating!
TrueCost: http://itunes.apple.com/us/app/truecost-mortgage/id358060578?mt=8
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Irene you very well explain why it’s so important to run the numbers, by doing that you waited (something that I’ve been encouraging my nephew to do as Canada has a housing bubble bigger than the States) and got a much better deal on a house than if you’d one the emotional thing and just bought one.
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i wish i’d seen this article when I was thinking about buying– I own two houses, rent one, live in the other and ..between headache of maintainance (sp?), taxes, finding good tenant bla bla UNLESS you buy a place that is really cheap that you can rent easily and you actually LIKE doing work on the house (there are folks that do)
I was tired of rent going up EVERY year…now taxes go up every year…but not the rent.
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Lesson learned the hard way. We bought an expensive home in a high priced market in 2005. We’re renting it out for $500 less than the mortgage, have repair costs and lawn care costs. IF we could go back in time to 2005 and I could have read this article, I would have chosen to rent a home and we would have benefited from
1) more free time
2) savings on repairs, taxes, interest
3) less stress
I have told friends wanting to buy about this article. I can’t wait to sell our home and be done with it. The people we bought it from weren’t upfront about a flood they had had in the basement. We didn’t seek legal action but now we will have to disclose a crack in the foundation which will likely bring the value down. HOME OWNERSHIP is very time consuming, stressful and expensive. I’d rather be free to travel, have more time for other pursuits and put my money elsewhere.
RENTING IS THE BEST!!
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In my experience whether or not you make a profit selling your home is mostly based on whether or not you made a good deal when you bought it.
Like many investments your best hope of making a profit rides on the wisdom of your initial purchase.
Buy right and you will make a profit when you sell.
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I see a lot of comments from home owners who dislike this article, and quote how home buying is better because their own mortgage is equal to the amount they would be paying if they were renting.
In my opinion, if you can get a mortgage in an area you want to live that is similar to a rental price in the same area, then go ahead and buy. But I think these examples are in the small minority and you have to live in the boonies to make it happen. The simple fact is, in most cities and suburbs, a mortgage is going to be at least twice as much as rent unless you have been diligent enough to save up and put a large down payment towards a house.
I don’t know about you, but I would rather rent at half the price of a mortgage and invest the rest. If you put 1800 per month into a mutual fund, in 15 years you will be a millionaire. You can buy your own house at that point. Now are you going to tell me you can get that kind of return on that 1800 extra per month in a home mortgage? Doubtful.
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Cory, that is at least partially incorrect.
$1,800/month * 12 months is $21,600/yr.
$21,600/yr for 15 years compounded annually at 10%/yr is $508,565 at the end of 15 years.
Surely not chump change, but a far cry from being a “millionaire”.
Oh, and you make it seem simple to put aside $21,600/yr, while paying $900/month for rent.
So, while you’re able to put out $2,700/month for rent and investments. The majority of Americans cannot set aside $32,400 for a roof over their head, and investment, and ignore other such things as vehicle, insurance, gas, heat, electric, food, and some form of entertainment.
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Instead of renting or buying a home I chose the third option.
I have saved up some money, quit my job, and bought a beautiful 3 acre piece of land on the southern coast of Georgian Bay. Yes, I’m Canadian and the price of homes in Toronto is over $500,000 in most cases.
The land have cost me $90,000 most of which I was able to save up.
I have planted some trees, shrubs and herbs, which need very little care, but supply most of my family’s nutritional needs. A little vegi guarden and a stock of chicken and gees take an everage of 2 hours a day to sustain, while providing the rest of nutrition.
Our monthly expances are around $400 a month, and with the $2,000 I’m making now with my own Lighting business, I can sustain my family and save money, while my wife take care of our baby.
All in all, with just one person in the family working, we are able to save money to build a new off greed home on our land, enjoy home grown organic food, that by the way tastes amaizing, and enjoy our life like never before. Hiking, sweeming in the lake. We can actually see the stars from here. I also like to think that with each passing generation, if my kids choose to stay on the land, the place will become better and better. We already start to recieve fruits from many of our trees, but some take longer than few year to grow to their full size and start fruiting.
I have long believed that whether you are renting or buying you are getting screwd because you own nothing. If you rent the rental company or the owner ownes the house, if you buy, the bank ownes it, you just own the risk and the interest. On the other hand, if you truly own a peace of land, it makes it much easier and more senseble to plan for the future.
Cheers.
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I bought my house in 1990 in a high-priced area in California. It is only a 1150 sq ft house, not a mansion, and I paid $230,000 for it. It is now worth over twice what I paid for it (yes it was worth $100,000 more three years ago, but that is just on paper).
I am six years away from paying off my house. I would have gotten it paid off earlier if I have learned about frugal living sooner!
But the point is that because I bought my house, I am going to be able to retire fairly comfortably at 65, or maybe sooner. My housing costs including maintenance, property taxes, and insurance, will be about $650 per month. A similar house in this area rents for $1800-$2000 per month. My friend who is not a homeowner says she has to work until she is 67, and then they will be forced to move to a lower cost area. And she will be paying rent for the rest of her life. Enough said.
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In reality, very few renters invest the difference between the rent they are paying and the amount they would pay if they bought a house. They spend the money on dining out, SUVs, and vacations.
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Muria while you do make a good point part of the reason for your sucess is that you bought at a good time, would the story be the same if you paid 600 or 700 grand?
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Renting versus owning is really a personal decision, Renting or Buying is all good depending on your financial situation.
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I sold my house this year and became a non-homeowner for the first time in 25 years. I can’t tell you how liberating it feels to be “just” a renter!
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What a difference a few years make! Now that the housing crisis is still in full swing, there are so many more reasons to be a buyer! I’m renting now and, like most renters I know in my city, they are paying the crazy rental fees to homeowners who have homes that are underwater. The 3Bd/1.5 bath, 1600 sqft place I live in is $825 with all the amenities. The same places in our city go for $75K-100K! The monthly payment with a 15yr fixed would be about $650 with taxes and insurance.
The changes in the market present an entirely new context, which this article does not address, that is: what happens when everyone is upside down and needs to rent places with high price tags just to keep their homes – and – why rent when you can buy awesome places that are back to being affordable??
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We like the flexibility of renting. If we don’t like my apartment anymore (for whatever reason – leaky roof, noisy neighbors, etc) or my landlord, we can move. Right now we’re even in a month-to-month set-up, so we can leave at any time and not even wait for the lease to expire.
We don’t have to do major repairs (garbage disposal was broken, landlord fixed it – toilet wouldn’t stop leaking, landlord fixed it).
If we want to move across the country, we can find a place to rent there, give the landlord 1 month notice, and move. We don’t have to coordinate selling my house with buying another one, or deal with mortgage servicers, or anything.
We have enough money to put a down payment on a unit like ours (one is for sale in the same complex), but why do it? Why lock ourselves into more debt for another 15-20 years (we’re paying off a nearly mortgage-sized equivalent of student loan debt)?
Renting is so much easier – and although we would pay a slightly less out in cash every month if we owned an equivalent unit, it is worth it to avoid repairs and to have convenience (since the cash cost per month doesn’t include future repairs and maintenance)!
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Lots of people are dis-illusioned with the realities of home ownership. They think because values of their home increase that it’s a reason for home ownership. The only time you benefit from increased value of your home is when you sell that home and move to a place where home values have not increased at the same rate. If you buy house in Atlanta and the value of your house goes up and you move to a place in Charlotte, NC where values have not increased as much, then yea I guess you could say you’ve made out pretty good.
Generally speaking, areas where home values have skyrocketed are more desirable places to live, hence the reason for the skyrocketing home values. The San Francisco Bay Area is a great example of this, everybody wants to live there and it’s caused home values to skyrocket. I suppose one could sell their home in San Francisco and move to Charlotte, NC and live like a king, but it wouldn’t be considered as desirable to most.
My Dad is typical, thinks home ownership is a great investment. He’s dead wrong. He talks about how the value of his home in Foster City has tripled to nearly $1 million. He doesn’t take into account that all the other homes in Foster City have increased in value at roughly the same rate. If he wants to stay in Foster City, he’s going to get a lot of money for his current house, but he’s going to pay through the nose if he wants to buy another home there.
Another example of how dis-illusioned people are about home ownership: Home ownership requires you to have a good paying, stable job with minimal or no lapses in employment. With our current economic crisis, lots of good people have lost their jobs as victims of this crisis. Unemployment numbers are high, and it’s contributing to the foreclosure numbers and ruining the credits of these people forever. Buying a home is extremely expensive and if you don’t have the monies to pay for it, can ruin you for the rest of your life.
I’m a Dental Hygienist and when I graduated one of my classmates moved to Stockton and purchased a house immediately in 2006. Her house has depreciated considerably since her purchase and she owes more on the house than it’s currently worth. She is able to pay monthly payments, but due to the fact that patients have been cancelling, her boss cut her days down from 4 days/week to 3 days/week, making it more difficult to make the monthly payment. Jobs are very scarce in the Stockton area at the moment.
Lots of people are facing pay cuts or having their jobs eliminated all together. Just because you guys have been lucky enough to have a stable job, doesn’t mean everyone else is in the same boat. Renting affords you the ability to move around at will, quickly and easily, to where jobs are plentiful. You can’t do that with home ownership.
For all the people who are saying the Pacific Northwest is expensive STOP IT!!! The Pacific Northwest is not expensive. The San Francisco Bay Area, where 3 BR homes are going for $800k+ is expensive! I’m not that familiar with Southern California either, but even if you don’t live in a major city, CA has the highest sales tax rate in the country, not to mention you’re getting taxed up the wazoo for State Income Tax, .02 cents for every bottled water, $15 disposal fee for buying a computer monitor, there’s a fee for this and a tax for that every time you buy something in California.
Sorry for my rant, getting back to the point: Even if you work in Bellevue, you can live in Tacoma or Auburn where the price of a 3BR house is downright cheap and it’s not that long of a commute either. Not to mention Washington has no State Income Tax. Homes in Boise, ID are still priced reasonably and affordable housing can be found in Oregon as well.
One of the reasons why so many people flock to the Pac NW is because the cost of living is cheaper. I read somewhere that 40-50% of WA State’s population increase is due to people from Ca moving here.
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Renting vs. buying. I have lived in an apartment for over 15 years. Have to be quiet and not disturb the neighbors (I can be out of town and make too much noise ??). The apartment building just got sold and my rent is going up. (still not sure by how much, but based on what I heard the new neighbors are paying alot)
If I bought my own place, its just less headaches and I know what my payment will be each month.
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Interesting perspectives by everyone!! I think that the bottom line is each person has to do what is best for their situation. As a renter, there are things that I enjoy about “NOT” being a homeowner. I do not have to worry about maintenance, which to me is worth every dime spent. I also have enjoyed the freedom of being able to move about, not being tied down to one house waiting and hoping for it to sell so I can move on to something else. My children and I started out in a small 2 bedroom apartment and have been able to move into a single family home I could NEVER afford to buy and maintain. Just being in a nicer neighborhood has afforded my children a “leg up” in life that they would otherwise not have received had I bought my home. There are perks to renting that are often overlooked, such as the one I just mentioned. When my kids are older (moving into their own lives, hopefully.. ha ha) I will be able to focus on downsizing and getting into my permanent retirement forever home. One that will hopefully suit my needs for the rest of my life. I have watched many of my neighbors who are stuck in their houses, while their jobs have moved elsewhere in this economic downturn and they have either had to give up their homes completely or spend enormous amounts of money commuting to work everyday (long distances, and spending HOURS doing it).
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Something is really wrong with your data calculations. If your calculations are correct, it means that owner of the house that is renting for $1500 is losing a lot of $$$ since he is a owner and theoretically should have similar costs as any owner. And I seriously doubt that the landlord/owner is running a business that loses money.
You save on renting vs buying only if you rent a cheaper house. In rest, renting vs buying is not that much different from money perspective, is just a matter of lifestyle preference. The most important financial aspect for both options is to rent/buy only what you can afford
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To all those commenters who bought a house and then sold it at much higher prices and think buying is always better than renting…
In 1994, I had $50,000 saved up and had a choice to use it towards buying a home or continue renting. I decided to keep renting and put it all of my savings into an S&P 500 index fund. I sold it 6 years later and tripled my money, therefore renting is better!
See what I did there? I could also re-write this story to say I bought $50,000 worth of lottery tickets and hit the jackpot, therefore playing the lottery is better than buying a house.
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Interesting article. Everyone certainly needs to determine what is best for them. However, investing at an 8% return would be great in the real world. Yes, the first 10 – 12 years of a mortgage is mainly interest only, with a very small portion going towards principle. However, with interest deductions and minimal principle payments, the end result is financially brighter. Also, who wants to have a rent / mtg. payment at retirement? Paying off your home “buys” security for old age. If you accurately put the numbers on paper, clearly you will see the advantages of owning. Would you want to pay rent for 30 years and own nothing? or would you rather pay a mortgage for 30 years and own a home? Not to difficult of a decision.
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Wow, how times have changed. A recent Trulia.com study showed that out of the top 100 largest cities in America, it’s only cheaper to rent than own in two of them.
Owning has been beating renting in Denver for a couple of years now, and I recently purchased a home and cut my monthly housing costs by about $700.
It also helped that I used my VA loan, which allowed me to avoid draining my bank account for the down payment but I’m still avoiding PMI.
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