ARTICLE: Renting is Throwing Money Away … Right?

[cjottawa]

http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/

From the article:

“Renting is Throwing Money Away”
Here are three popular arguments defending the “renting is throwing money away” myth.

#1: Rent is an expense. Mortgages build equity.

#2: Rent is forever. Mortgages end.

#3: Renters don’t benefit from rising home values. Homeowners do.

Let’s dismantle these, one-by-one.

(...and then then the article proceeds to do exactly that.)

[bacchi]

The zeitgeist is that being a homeowner is Bad. This is almost certainly due to the 2008/9 GFC when we found out that a lot of buyers and lenders were lying about their income and loans and appraisal values.

There is a time and place for renting vs. homeowning. Buying in Vegas in 2010 would have been a very smart decision. Buying in Vegas in 2006 would have been a very poor decision.

As rents continue to increase, the trend will shift to homeowning again. Given the number of articles about how renting is better, that crossover is fairly near.

[CoreyTheMan]

The zeitgeist is that being a homeowner is Bad. This is almost certainly due to the 2008/9 GFC when we found out that a lot of buyers and lenders were lying about their income and loans and appraisal values.

There is a time and place for renting vs. homeowning. Buying in Vegas in 2010 would have been a very smart decision. Buying in Vegas in 2006 would have been a very poor decision.

As rents continue to increase, the trend will shift to homeowning again. Given the number of articles about how renting is better, that crossover is fairly near.

Did you read the article because the overall theme was that they were economically/financially about the same.

[WerKater]

The article is good. What it boils down to is always this:
a) If you rent, you have to give a landlord money each month (we call this "rent") so he lets you use their property for a while.
b) If you own and you bought with a loan, you need to give a bank money each month (we call this "interest") so it lets you use their money for a while
c) If you own and you bought with your own money, you don't need to give anyone money, but you are missing out on the returns on that money that you would get if you had it invested (we call that an "opportunity cost").
(In fact, since you usually need a downpayment for a loan, most home-owners are in a combination of b and c).

Whether owning or renting is better for you depends on the relative size of "rent", "interest" and "opportunity cost". It's a quantitative question that need to be treated quantitatively. There is often no easy answer. You need to run the numbers.

And then it gets more complicated because you need to figure in all kinds of other things some of which can't be easily priced: Owning usually gives you more freedom but you are on the hook for all repairs. Renting gives you more flexibility, but your landlord might kick you out some day. And so on...

[JordanOfGilead]

My approach is this.
If I rent, I pay a considerable sum of money each month in exchange for borrowing a place to live. I get no return on this. It is not an investment, and I have nothing tangible as a result of this expense.
If I take out a mortgage, I also pay a considerable sum of money each month, but I now have the freedom to do literally whatever I want to my place of residence. I have the opportunity to develop and grow my DIY badassity instead of being a complainypants renter. Even if the housing market tanks, I still have SOMETHING as a result of my expenses. I can still recover SOME of the money I spent should I decide to move, and I can even turn my expense into a profitable situation through renting out.

Houses and land are currently very cheap in my area, so it may be biasing my opinion, but I don't really see any situation in which I will be living somewhere for two years or more in which renting would be better than buying.

That being said, I currently rent and it's driving me insane that I could have a house 3x the size of where I am now sitting on 5 acres on a 15 year mortgage for half of the monthly cost of my current rent, but I don't have savings for a down payment because I've been throwing everything at my debt emergency.

[cjottawa]

...Houses and land are currently very cheap in my area...I could have a house 3x the size of where I am now sitting on 5 acres on a 15 year mortgage for half of the monthly cost of my current rent...

I assure you, this is not the case in Canada.

A metric that William Bernstein uses is "150-180x monthly rent" for a reasonable purchase price of a comparable home.

$1000/mo rent is typical so, by the above metric, a $150,000 to $180,000 would be reasonable. According to the CREA (Canadian Real Estate Association) the average Canadian home price is $440,000, $330,000 if you exclude Vancouver and Toronto.

[therethere]

Houses and land are currently very cheap in my area, so it may be biasing my opinion, but I don't really see any situation in which I will be living somewhere for two years or more in which renting would be better than buying.

That being said, I currently rent and it's driving me insane that I could have a house 3x the size of where I am now sitting on 5 acres on a 15 year mortgage for half of the monthly cost of my current rent, but I don't have savings for a down payment because I've been throwing everything at my debt emergency.

You just contradicted yourself on the very next line.... Having other debt and not having a downpayment is a VERY good reason not to buy a house. Its one of the main reasons I have not bought one.

Also, do we really need a second thread?? There's another one bouncing around with almost the same exact title and I believe based on the same article.

[JordanOfGilead]

Houses and land are currently very cheap in my area, so it may be biasing my opinion, but I don't really see any situation in which I will be living somewhere for two years or more in which renting would be better than buying.

That being said, I currently rent and it's driving me insane that I could have a house 3x the size of where I am now sitting on 5 acres on a 15 year mortgage for half of the monthly cost of my current rent, but I don't have savings for a down payment because I've been throwing everything at my debt emergency.

You just contradicted yourself on the very next line.... Having other debt and not having a downpayment is a VERY good reason not to buy a house. Its one of the main reasons I have not bought one.

Also, do we really need a second thread?? There's another one bouncing around with almost the same exact title and I believe based on the same article.

I was saying that my lack of down payment on top of my debt emergency were the only things preventing me from taking advantage of the buyer's market. Not a contradiction, so much as an explanation. Long-term, renting me is hurting me right now more than buying would if I had enough liquid assets for a down payment. That's what the "it's driving me insane" part was for.

[Marus]

My approach is this.
If I rent, I pay a considerable sum of money each month in exchange for borrowing a place to live. I get no return on this. It is not an investment, and I have nothing tangible as a result of this expense.
If I take out a mortgage, I also pay a considerable sum of money each month, but I now have the freedom to do literally whatever I want to my place of residence. I have the opportunity to develop and grow my DIY badassity instead of being a complainypants renter. Even if the housing market tanks, I still have SOMETHING as a result of my expenses. I can still recover SOME of the money I spent should I decide to move, and I can even turn my expense into a profitable situation through renting out.

Houses and land are currently very cheap in my area, so it may be biasing my opinion, but I don't really see any situation in which I will be living somewhere for two years or more in which renting would be better than buying.

That being said, I currently rent and it's driving me insane that I could have a house 3x the size of where I am now sitting on 5 acres on a 15 year mortgage for half of the monthly cost of my current rent, but I don't have savings for a down payment because I've been throwing everything at my debt emergency.

I'd be careful about saying you can do whatever you want to your place.  If you have a mortgage you're going to need to keep the homeowners insurance people happy, which may mean doing things you don't want to do.  You'll also need to keep the town happy by keeping up with all the zoning regulations, which can be a substantial amount of work.  Hopefully you live in an area where this doesn't apply though! 

Also, housing will never be a risk free investment.  There's always the possibility that the market will tank so badly that even if you sell it all your money will go to the bank.

[JordanOfGilead]

My approach is this.
If I rent, I pay a considerable sum of money each month in exchange for borrowing a place to live. I get no return on this. It is not an investment, and I have nothing tangible as a result of this expense.
If I take out a mortgage, I also pay a considerable sum of money each month, but I now have the freedom to do literally whatever I want to my place of residence. I have the opportunity to develop and grow my DIY badassity instead of being a complainypants renter. Even if the housing market tanks, I still have SOMETHING as a result of my expenses. I can still recover SOME of the money I spent should I decide to move, and I can even turn my expense into a profitable situation through renting out.

Houses and land are currently very cheap in my area, so it may be biasing my opinion, but I don't really see any situation in which I will be living somewhere for two years or more in which renting would be better than buying.

That being said, I currently rent and it's driving me insane that I could have a house 3x the size of where I am now sitting on 5 acres on a 15 year mortgage for half of the monthly cost of my current rent, but I don't have savings for a down payment because I've been throwing everything at my debt emergency.

I'd be careful about saying you can do whatever you want to your place.  If you have a mortgage you're going to need to keep the homeowners insurance people happy, which may mean doing things you don't want to do.  You'll also need to keep the town happy by keeping up with all the zoning regulations, which can be a substantial amount of work.  Hopefully you live in an area where this doesn't apply though! 

Also, housing will never be a risk free investment.  There's always the possibility that the market will tank so badly that even if you sell it all your money will go to the bank.

I meant whatever I want as far as painting, renovations, landscaping, etc. Ant the same "the market could tank" fear tactic could be applied to investing in the stock market too. If that's the case, I would plan on riding it out until the market goes back up or I have positive equity. Even if I can't sell the house due to a bad market, I would still HAVE a house, which is more than I can say for a rental property in an area where landlords have the right to evict without reason with 30 days notice.

[Travis]

http://forum.mrmoneymustache.com/ask-a-mustachian/i-can%27t-understand-why-%27renting-throwing-money-away%27-is-wrong/

We were just talking about this a couple days ago.

[cjottawa]

http://forum.mrmoneymustache.com/ask-a-mustachian/i-can%27t-understand-why-%27renting-throwing-money-away%27-is-wrong/

We were just talking about this a couple days ago.

Huh. I searched and didn't see that thread.

If a mod would like to merge the two, please, feel free.