Tuesday, May 08, 2007

Renting, Buying, & Bull(pucky)

I haven't been a renter for eight years.

I purchased my first home (a condo), in Provo Utah and subsidized my mortgage with income from renting out my spare bedrooms to BYU students. It was a good purchase and I value what I learned from the experience about paying bills on-time and fiscal health in general… when I sold it, I made paper profit — it sold for more than I bought it for — but lost on the back-end until I factored-in the off-sets from rental income. I was stunned. I had paid more on my mortgage than I had gained in appreciation. Somewhere along the line, I made the common error of thinking that paper profit was the end goal… and believing the myth that buying is always better than renting.

If you're in the market to buy, or if you're in the mood for a reality check, you'll enjoy this amazing calculator from The New York Times, which lets you compare the true costs of renting versus buying. You may be surprised.

As much as I love owning my home, I am a firm opponent of the idea that renters are "just throwing their money away". It's false on its face for the many buyers without the credit to get a good interest rate and those who plan on selling within a few years... but worse, it ignores the value that housing — regardless of whether it's in a rental or not — offers. There's value in having a roof over your head, just ask a homeless person. And unless you own your home outright, you pay for that privilege.

So why the kerfuffle? Three reasons, really: mortgages are big money, home ownership is part (and parcel?) of the American Dream™, and home-buyers are seen as better citizens by all levels of government.

UPDATE: Another article on the problem with the idea that buying is absolutely the best idea for everyone… this time from Get Rich Slowly.


Anonymous said...

I may have missed this, but did you take into account (1) what you would have spent on rent and (2) the mortgage interest deduction on your taxes (if you were able to take it)?

In our area, rent costs about the same as a mortgage, which means that you come out ahead (because of taxes), even if the home doesn't appreciate. Of course, all of this depends on the numbers in your area.

-L- said...

I've been trying to wrap my mind around the real costs of renting vs. buying and it's not an easy thing to do. Ultimately, though, our little family has done both, and although the money has turned out to be similar either way, the purchased property was larger, nicer, and more livable. I suppose if we had had some huge maintenance during the time we owned it would have all been a different story. But given the market right now, I'm a big fan of buying.

Abelard Enigma said...

You also have to factor in where you live. My daughter and her husband pay more in monthly rent for a small two bedroom apartment in California than we do in a house payment for a 3000 sq ft home in Texas with a swimming pool (including insurance and property taxes)

Silus Grok said...

No, I completely agree: buying a house is the perfect choice for a lot of people… it's just not for everyone.

I'm curious: did any of you three use the calculator to see if you should have bought?

Anonymous said...

As a home owner, don't forget:

1. property taxes
2. utilities (sometimes included in rent)
3. landscaping costs
4. all of the up-keep (your heater = YOU fix it)
5. And after my deduction for interest I think it meant I got one more trip to McDonald's.

I wished I had rented longer. But at least I got into a home before they skyrocketed in cost.

the alfandre family said...

very interesting...definitely reminds us to look at the bigger picture or maybe just different angles of the pros and cons to buying vs renting. i'll be the first to admit, i'm so easily sucked into the american dream (i can see my white house with a wrap around porch, sitting on 2 acres of land right now!) and i love it

Silus Grok said...

Spot-on Davey.

This post isn't meant to bash home ownership... just the notion that it's some financial panacea.

Home ownership is a HUGE boon to our communities... and high renter rates spell nothing but trouble for neighborhoods... but somewhere in between, there's balance to be found.

Silus Grok said...

Yeah, that's true, Steve (I think it's Steve... or maybe Callie?)... the American Dream is alive and well — and maybe be one of the true commonalities of being an American. But it has to evolve.

We can't all have large homes and large lots... and the idea that we can, and the political capital wrapped around that idea is killing us. Literally.

Sprawl is a threat to our very lives in matters of health and national security.

But that's another post entirely.


Silus Grok said...

And here's an article I need to read on the history of home ownership in the US...


Sir Jupiter said...

I remember that Provo condo. We were neighbors. All we missed was the sassy black lobby attendant and we would have had a great primetime sitcom.

Silus Grok said...

@Sir Jupiter: That was a fun neighborhood... but I wouldn't trade that place for my home, downtown, for the world.