RENT vs BUY

There have been a number of reports recently claiming that renting is more expensive than buying a house. This is a great thing as everyone involved in selling, building and financing houses would tell you, especially if it were true. Unfortunately it is not for a variety of reasons, one of them being that owning the home you live in just isn’t that good of an investment, but we’ll get to that in a moment.

The first hurdle is the challenge of amassing the 20% down payment. On the average US home price of $242,300 the downpayment would be $48,460. That is essentially one whole year’s worth of the US median income of $51,413, so the question is how long would it take someone to save that much? This question is nearly always ignored in these comparisons.

When the true cost of owning and operating a house is examined the rent vs. buy decision becomes more about lifestyle, flexibility, security and for single family houses the lack of noisy neighbors right upstairs. The myth that a home is a good investment is also shown for what it is. On average you pretty much get back what you put into a house if you’re lucky. Now during the bubble some people did tremendously well from one house to another maybe even multiple times but what about now? Or more appropriately, how about over the long term?  I was recently talking with someone who mentioned that if they’d sold their home in California in 2007 instead of 2010 they would have had an extra $400,000 in equity. I reminded them that they would have just taken that and rolled it into the next house and at 5% down that could have been up to an eight million dollar bigger house! How would you like to be upside down on that right now I asked.

MDC thinks it over and smart renters also take the money they save by renting and invest it somewhere else. Since the average renter saves hundreds of dollars every month, they can afford to invest in stocks, bonds and other vehicles that have a better rate of return.