Thomas wrote in on Monday to share a comic strip related to our discussion last week about whether renting makes sense:
Click on image to open a larger version in a new window.
Ah, Dinosaur Comics — you gotta love them.
As a reminder, I’m not opposed to owning a home. I own one myself and have no plans to move. But my recent research persuaded me that renting isn’t as bad as it’s been made out to be. Both renting and owning can be good choices; it just depends on your situation. (And how many dinosaurs you have roaming the neighborhood.)
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This article is about Funny Money, House and Home
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Bubbles cause people to view things in a skewed manner. But once the bubbles burst, people tend to swing from one extreme to the other. People go from “Rent is for losers” to “Buying homes are for losers”.
The thing is, there is no catch all for everyone and there are factors beyond money that need to be factored.
I myself am a young engineer and know I will be moving away from my current location within the next 2-3 years. To me, I MIGHT make money, but do I want to deal with loans, maintenance, and then selling the house when I know I WILL be moving so soon for the chance to make a little money? Nope.
Now, later on in my career, when i am settled, in my career and in my personal life, I would seriously start to think about the benefits that home ownership brings.
But for now, mobility and low maintenance are what I’m looking for. If I have to pay a slight premium for something I value, then so be it.
To me, I’m willing to spend more for something I value. Life is not dictated by numbers. What’s the point of living if you don’t enjoy it (within reason of course)?
There are plenty of rent vs. own calculators out there, but to me, freedom to move as necessary is not something I’m willing to part with. As a young engineer, positions come and go, and the more flexibility I have, the greater chance I have of capitalizing on those opportunities.
*side note*
The Who are rocking out in Miami!!!
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Wow, you just gave me feed Deja Vu.
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also, when you buy a USED cookie, you need to hire a cookie inspector to make sure there’s no problems with your cookie. cookie inspector unions, you guys!
[Dinosaur Comics ftw!]
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My son’s got a book where everything they buy comes with a free dinosaur. http://www.amazon.com/When-Dinosaurs-Everything-Elise-Broach/dp/1847381936
I do wonder how that would change property values…
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I get that it’s supposed to be humor but I think it’s just a stupid analogy.
You DO need a home and while a cookie can’t be eaten more than once, you can use your home all your life.
When you have paid off your house you have almost free accommodation. It may take you 30 years to pay off the home but then you don’t have to pay anymore. But if you rent you have to pay a monthly fee (which, at least, is increasing with inflation) EVERY month throughout all your life.
Unless you move very often, there really is no reason to waste money on renting.
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I live in Houston, Texas, and work at a famous government installation suddenly (as of 6 days ago) facing thousands of layoffs. So if I need to sell my house so I can move to another state where there (hopefully) will be work in my field of experience, what sort of price do you think I’ll get for my house? Who would buy it anyway? Detroit has a 50% effective rate of unemployment, per its mayor, and houses there have not sold priced at $1.
I can’t wait until I can tell my wife “I Told You So” when I suggested renting was better than buying in this economy 2 years ago… even though we could have afforded either plan. I win. Yippee for me.
Banks will be slammed again this year (2010) with steadily increasing numbers of “Alt-A” mortgage defaults as people who got home loans without having to document their income start having their loans reset to higher interest rates. This “second wave” of defaults will go on for several years as all the clocks run out on these flakey loans made during the mortgage boom years and these mortgages start to adjust rates. Will the Federal Reserve raise its rates and slaughter the banks and buyers, or will it instead keep hemorrhaging dollars into the economy to save them? (Wiping out my savings in the process.) None of these doom and gloom possibilities are going to help housing prices increase any time soon.
So by all means toss your savings into a down payment for a declining asset you may not be able to sell to retrieve any of it – one that locks you into a location whose job market may not match your skills. Home ownership is the American Dream, after all.
SLAP: Ow! Thanks for waking me, dear. I was stuck in the American nightmare.
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haha. JD, are you still on a comic book fast? are you suffering from withdrawal such that any comic exposure will do? Nice light touch on an apparently touchy subject.
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I love dinosaur comics.
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Too many people buy a home looking at it only as investment. We bought our house because 1.) rent in our area is absurdly high for what’s being offered, 2.) we bought a house way below the ‘budget’ the bank gave us and therefore will be able to pay it off much much sooner than 30 yrs, and 3.) we like being able to paint, decorate, or remodel our house any way we like! We don’t think of our house as an investment, we think of it as our home! (Also with all the current foreclosures going on we don’t have to worry about a landlord not paying THEIR mortgage!)
P.S. dragons are cooler than dinosaurs! They are imaginary and have wings!
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I agree with Steven (#1). It depends on your situation. If your job requires you to move a lot or if you’re the type who feels it isn’t time to settle down, renting is ideal, otherwise you’re better off spending all that monthly cash towards ownership.
In my opinion, the only way owning a house works is if you don’t look at it as an investment, but rather a home where you intend to live in for a long time. That way you will endure the worst downturns and you won’t lose sleep worrying about your home value.
Here’s another analogy. Renting is like putting money in your landlord’s piggy bank.
We just bought our first home last year… but we decided to go this route after careful deliberation and planning. We made sure that we could afford to own one.
Our situation was: Our rent was $1800/month. We wanted to own because we want to settle down and we were tired of sharing a wall with neighbors (and hearing their loud footsteps on their wood floors and stairs), and we’re tired of waiting for the landlord to fix things when something broke.
Now: Our mortgage is $1300/month on a fixed low rate, we absolutely love the house, the neighbors and the community, and we can decorate it any way we want.
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As my father always said, “If you’re going to own a home, make sure it comes with enough land to actually grow crops and raise livestock in case those become your sole source of livelihood.” I don’t get these quarter acre plots whatsoever, nor houses that are massive with tiny backyards. I prefer land to roam, grow, and enjoy.
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For me home ownership is a sovereignty issue. As a renter, I have limitations placed on me beyond my control, such as what color the walls can be painted, how many and what kind of pets I can own, and what kind of energy efficiency measures I can pursue.
As a tenant, I have issues with fellow tenants in the complex (his girlfriend is REALLY loud…and I don’t mean talking), with the rental company (I have to fight every month just to get charged the right amount of rent!), and with the maintenance contractor (I know northern Colorado gets a lot of snow, but, maybe, 6″ is enough to send a plow out to the parking lot).
Sure home ownership comes with other issues, but then they are my issues to which I get to control how to respond.
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In my city (Calgary, Alberta, Canada), it’s much cheaper to own than to rent. At least it is for us, since we bought just before the real estate boom. I know I have friends who are renting, and the price they’re paying horrifies me. I can’t even imagine.
If we were looking to buy now, though, things would be different. I still prefer the idea of owning, though, personally. If you focus on paying it off early, then if you accomplish that you only have to pay house insurance an taxes. Sounds good to me!
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Why do you have to sell your house if you are moving? I bought my condo in 2003 and in 2008 I had to move to another city. I’ve rented it out and the rent I get is more than the mortgage I have to pay.
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@12
There are noise ordinances for apartments that share common walls. Figure out what the limit is, and called the cops if it’s actually too loud/late. In college, I called the cops every weekend. They quieted down when the fines started appearing.
Fighting to get the correct rent charged? Did you not sign a contract?
As for limitations, you’ve still got those with condos and homes. You have association rules that you still have to abide by. While they are normally less restrictive, you still don’t have free reign to do whatever you want.
And to get things done, the landlord has 1 week after written notification (in Florida at least) to fix the problem, or taken appropriate steps to start fixing the problem if it’s complicated, and you can withhold rent until they get it fixed (after the 1 week wait). Also, if you need a snow plow after a snow storm, you think only your car is the only one in need of snow removal?
If they continually suck, then why the hell you staying there? You’re only looking at the cons, and none of the benefits. The biggest benefit of renting is mobility, able to skip town for a better job or GTFO of a dump.
@13
And what about maintenance? Unless you’re like my parents where they have like zero maintenance in the home in ~20 years, I can’t see it being that cheap. I’ve been estimating the cost of renovations, and it’s at the point where it’s cheaper to gut it out and start from scratch, rather than fixing things.
@14
Yeah, how much more than the mortgage? You’re paying interest on the mortgage, and if you don’t itemize you don’t get the deductions, and paying taxes on the rent. Tell me how much you make per hour, after having to deal with maintenance calls as well. I’m not saying it’s not possible, only saying that many times, renting out a place is easier said than done. If you’re doing it, good for you, and congrats on making it work. But how many people attempt and fail at what seems “so easy”.
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Indeed, it is more than just numbers, it’s about the type of lifestyle you prefer. Still, do your math. Readers like Bananen should understand that there is no such thing as “almost free accommodation.” You’ll always have taxes, insurance, maintenance costs, and perhaps most significantly, potential lost opportunity (to put your money to better work).
The house I currently live in costs some 25 times (!) the yearly rent. Meaning, I can take any money that I have for down-payment, any leftover from paying the rent, and invest it in more liquid higher-yielding investment instruments. For me, it’s a much better option right now. Of course that would not be true for everyone, everywhere, at every point in time – let’s all respect that.
A bit old but still relevant: http://www.nytimes.com/2005/08/19/realestate/19real.html
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Lol I thought I’d been taken to the XKCD site for a second. Nice twist.
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I totally disagree that renting is a waste. You have to have a place to live no matter what. Buying/renting either one is not for everyone but at the end of the day you have to have a roof over your head whether your getting equity or not. Buying is for some and renting is for others.
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I’m with mario@newislanders (#10) and the others who brought up some good points.
In many parts of the country (and other countries, like here in Canada!), it’s dumb to buy rather than rent, but in many other parts, it’s smarter to buy rather than rent.
For the approximate cost of renting, we get a much nicer home and a yard where we can plant a vegetable garden and rooms where we can use nails to hand mirrors/art and paint the walls any colour. To us, that’s worth a lot.
Also, for me, ease of mobility is a con, not a pro for renting! Who wants to move all the time? Not me!
It all comes down to personal preference and lifestyle choice. Buying is better for some, renting is better for others. Same with toothpaste flavour, or liking cats over dogs. What works for you might not work for someone else, but neither is solely “right” or “wrong”.
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I currently own and enjoy it. We don’t have any immediate plans to move, so we don’t stress too much about home values going down; granted they haven’t dropped below our original purchase price and are still well above what we owe.
I tend not to think of my home as an investment anyway, because my retirement plan doesn’t include selling the house, which would cause me to move into something cheaper, like a trailer. Still the fact that that the house may have some value is a nice bonus.
When I was in grad school I remember thinking it would be nice to own and not “throw so much money away.” However, when I finished school and moved and watched friends who had bought homes trying to quickly sell them as they moved somewhere for a new job, I was very glad we were only renting.
Renting and buying both have their place, but buying, in particular, comes with some significant risks and shouldn’t be done simply because you don’t want to throw away money in rent.
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@15
The local noise ordinance is 7pm-7am. But I still don’t want to listen to my neighbors having a nooner.
The lease says $625/month + 1/4 of the total monthly gas bill (4 apartments in building, 1 meter…and a neighbor from Florida!) The problem is that 1) whoever makes the calculation of the gas bill seems to have trouble dividing by 4, because the amounts are never quite right (always less than a dollar, but it’s the principle) and 2) sometimes they charge us two months worth of gas bills, instead of one. I have to sit down with their accountant EVERY month to get the correct amount straightened out since the heat turned on.
I understand that our parking lot isn’t the only one in the area that has to be plowed after it snows, but the plow has been out once this winter, and we’ve had 6 snow events that provided 4+ inches of snow.
As soon as our lease is up in July, we are moving out to a different place. We will probably start our search next month.
I understand that condos and HOA’s place similar or other restrictions on your home. And that’s why, when I’m ready to buy, I won’t even consider buying anything under a covenant.
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Most homeowners will ignore the costs of taxes & maintaining a home when they calculate their return.
Simply because you buy a house for $100,000 and sell it for $150,000 5 years later don’t think you made $50,000.
Even here, in a “flyover” state with relatively low property tax, I’m paying $500/month just for taxes and maintenance on a modest 3 bedroom townhome.
Sure, you can ignore that roof that should have been replaced years ago, at least for a little while longer, but deferring maintenance will cost you eventually…
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My wife and I are acutely aware of how much more expensive owning a home is rather than renting one. When we doubled our square footage, we not only double our monthly payments, but our insurance doubled, our utilities doubled (almost tripled), and don’t even get me started on the headaches….with all that said I would do it again
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@15: What sort of maintenance? My husband is very handy. We have never needed to call a plumber, an electrician, anyone to install anything, etc. He does it. We haven’t had any major expenses that couldn’t have come up with a rental. That makes buying work for us. I am exceptionally happy that we own the house (okay, after we pay off the mortgage company we’ll own it).
While my friends are paying $900 per month for a 2 bedroom basement suite, we’re living in a 3-bedroom house with a nice yard (like someone else said, where we can grow a vegetable garden) for about $590 per month. And nobody can tell us that we can’t have pets (that’s also an issue with renting here in my city–almost nowhere allows pets!). Plus, If we really needed the extra cash, we could rent out one or both spare bedrooms.
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I guess owning a house makes more sense than owning a flat. Here (Italy), buying house means most of the times buying a flat. If you are a owner and the majority of other owners decide the condo needs, say, a new, automatic gate, you can’t do much but pay your part. If you rent, of course, your landlord will pay for work done to the common parts.
I’m glad I bought a house, so that I can decide if and when to change my shutters or repaint the outside walls.
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Bahahahahhahahaaha cookie equity….. I love it. :]
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The biggest differences in owning vs. renting are outside of the financials. Sure in NY or SF the cost to buy is way higher than to own. But in most places, it’s not that much different especially if you have high income and actually itemize.
I’ve rented for a long time and now I own. Owning is way more expensive, but you can’t compare the two where I live. We looked at renting houses and the houses that were for rent were pieces of crap. Also, don’t think that landlords do everything for a tenant. Many of the houses that we were looking at the landlord would do minimal upkeep and these are for places that were fetching over $2,200 a month.
The prime benefit of owning a house is that its yours to do what you want (including adding on to it subject to neighborhood restrictions). The prime benefit of renting is mobility and lack of commitment. If you are going to buy a house today, you had better be prepared to be there for 7 plus yeas or be willing to lose a ton on the sale (factor in 10% of the sales price as how much it will cost you).
I liked both renting and owning, they are just different. In both cases, I got great deals so I always felt I had good value.
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We own our home and while I’m generally a fan, I do miss being able to call the Landlord and make *him* fix broken stuff.
Also, we’ve been confronted with two of our neighbors converting their homes to rental properties and having less than ideal tenants. Even though we own, we have absolutely no control over these revolving doors flanking our property.
Recently, one of our neighbors died and his kids sold the house to a lovely family with little kids and a dog…that scream and yell and fight and bark all f#@%ing day long in their back yard. So it’s great! And I can’t afford to move because we’ve only had the house for a couple of years.
It sucks to have beautiful weather (I’m in South Florida) and to not want to open the windows because of the noise from your neighbors during the day.
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It’s all in the timing. Like everything in life, if you decide you must buy or
must rent no matter what your situation is — you may end up making a bad mistake. Much like the millions of homeowners going through foreclosure during this economic crisis.
I personally saved over 250k from renting instead of buying the past 5 years. 100k
from the difference in costs and 150k from the price drops. Now I am a landlord after picking up a foreclosure for 215k less than it’s 2006 price. Basically, the fanatical pro-owner buy at all costs crowd filled up my pocket with cash so keep up the good work.
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@19 Caitlin
Ease of mobility is a con? You don’t have to move if you don’t want to. Unless you’re a bad tenant, I’ve encountered very few times where I know people who were kicked out.
Landlords usually like people who they already know and if they are good tenants. My previous landlord begged me to stay, and was willing to work out a payment plan with me. But I couldn’t because I couldn’t find a job and knew there would be no engineering positions in town. Good luck trying to sell a home last year with a decent price if you bought during the bubble.
Landlords take a risk when they rent to people they don’t know. Also, I usually dealt with individuals, so I got a feel for their personality before renting, and shied away from corporate complexes.
Of course, I’ve had the crappy landlords as well. I stayed for a couple months and I was gone.
@24 The Skeptical Housewife
And what would happen if your husband wasn’t there? Who would do the maintenance. Just because you have the luxury of a S.O. to do the work, doesn’t mean it doesn’t exist.
For me, that means I end up doing the work. I’m handy, but by no means an expert at all home repairs. I can do many little things, but for the more complicated things, my time is better spent furthering my career.
Later on, when I have more knowledge and experience in my career, and I encounter diminishing returns on how much I gain from the time I spend, then I may look into furthering my handy skills around the house. But until then, I like being able to call the landlord, tell them to fix the problem, and study and learn about being an engineer.
Gaining the expertise in being self-sufficient at home requires much time and effort. I don’t need to perform a cost analysis to see if it’s better off to fix it myself.
I’m not knocking home ownership. I’m only saying that there is no best for EVERYONE. For now, owning works for you and renting works for me. When I settle down, maybe owning will be better off for me. But like I’ve been saying, it goes beyond just the $$$.
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@#30-Steven:
If my husband wasn’t here, I’d have to hire someone. However, we haven’t had too many problems. I’m wondering what major maintenance/expenditures you’re thinking of.
I’m not saying that owning is best for everyone. But for us, I’m glad that we do. I really think it’s best for our situation.
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@24 – $490/mo for a mortgage yet friends pay $900 for a basement? You must live WAY out in the burbs while your friends live in the city? Or else different regions entirely.
Taxes – itemizing only adds a few thousand to your deduction, i.e. less on your taxable income but then we apply the tax table – it’s a deduction, not a dollar-for-dollar reduction like a tax credit. But you pay a few thousand in insurance. Not to mention taxes & maintenance and interest, & paying to have more complicated taxes done.
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@#32:
$590/month for a mortgage. No, we actually live not too far from the City Centre (in the ghetto, lol), and they live in a different area of the city but same sort of distance, I think. But to be fair, my husband bought the house before the real estate boom.
Even so, there are decent deals to be had, and if my friends were to save up a down payment and buy a place, they’d be getting more for their money, house-wise. They’re just not in a position to do that right now. I think that they’re not quite finished paying off their debts.
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