Rent or Own?

amandajane · 01-04-2008, 04:12 PM

I'm wondering on what people's thoughts are about renting a home vs buying. From what I can gather there are a lot of hidden costs to owning your own home.

I've only ever rented but at times wished I had brought a house on a 20 year mortgage when I was first married at 18, it'd be paid off now. That's a scary thought!

There is a big thing about owning property here in NZ, rental property particularly as there is a huge need for houses for rent, particularly here where I live. I'm happy though, my rent at the moment is $20 a week less than it was 5 years ago :0)

So, what do you think? Rent or own?

farley2k · 01-04-2008, 04:37 PM

We own but I am not sure it is the best choice. It is wonderful in many ways but it does tie you down. Right now there is a slump around the US so if we wanted or needed to move to a different town we could be sol. On the other hand we are building up equity so hopefully we will have more money when we leave this house than when we came into it (but like any investment it could backfire)

Trent at The Simple Dollar did several blog posts about the subject. He loves to play with math and work out where you come out ahead. I believe his last calculation said that if you invest what the difference would be between rent and mortgage (say rent was 800 and a mortgage was 1000 you would invest 200 a month) then a renter comes out with more money in 20 years. So from a math standpoint it seemed like renting wins but there were a lot of other factors which people talked about in his comment section. It is well worth checking out.

amandajane · 01-04-2008, 04:39 PM

Quote:

Originally Posted by farley2k

We own but I am not sure it is the best choice. It is wonderful in many ways but it does tie you down. Right now there is a slump around the US so if we wanted or needed to move to a different town we could be sol. On the other hand we are building up equity so hopefully we will have more money when we leave this house than when we came into it (but like any investment it could backfire)

Trent at The Simple Dollar did several blog posts about the subject. He loves to play with math and work out where you come out ahead. I believe his last calculation said that if you invest what the difference would be between rent and mortgage (say rent was 800 and a mortgage was 1000 you would invest 200 a month) then a renter comes out with more money in 20 years. So from a math standpoint it seemed like renting wins but there were a lot of other factors which people talked about in his comment section. It is well worth checking out.

Thank you for the link, I'm checking it out now. Looks good. I've seen his blog posted in various threads here, it seems he has a lot of fans :0)

The Honest Dollar · 01-04-2008, 05:54 PM

I'm also a fan of Trent's blog.

I think renting vs. owning is a very individual decision. Living in New York, it makes more sense to pay rent than to buy an apartment or house that would require $100,000 in just a down payment.

A couple of considerations for people who are facing this decision: How long will you stay in your house, if you buy it? How much will you be able to sell the house for if you leave it before the mortgage runs out? What will be higher, rent or your monthly mortgage payment? How much higher?

I'm sure there are financial calculators online to help with the decision as well. You can probably Google for them, since I can't think of a good one off the top of my head.

Joanne · 01-04-2008, 05:55 PM

Owning a home was best for us. I didn't want to pay all that rent each month and have nothing to show for it...meaning it's not even mine. When we lived in NYC, rent was well over $1000 a month for a one bedroom apartment. We moved to Florida, bought a house and our morgage was $776 a month with $4,000 down. We also have much, much more room and property than we had before.

I think it really depends on your situation.

Gootsy · 01-05-2008, 02:53 PM

I have become a huge fan of renting recently. Sometimes I feel like I want to burst out of my skin when I hear people talking about buying a home and how great an investment it is.

The hidden costs are huge, and in my area, renting is just sooo much cheaper than the mortgage payments on the exact house if purchased.

Philip Brewer · 01-05-2008, 04:02 PM

I talked about renting versus owning here:

Renting is cheaper | Wise Bread

It's kind of an unconventional analysis. The usual practice is to look at the period during which the mortgage is being paid off, during which the owner is "building equity" and the renter is (maybe) "saving and investing" the difference between the rent payment and the mortgage payment.

Instead, I start after the mortgage is over: the owner has a house, which he can live in rent-free, but with a bunch of expenses that the renter doesn't have (property taxes, garbage hauling, etc.).

If you total up the expenses for both sides, you can calculate an "equivalent investment" that the renter would need to have to come out even--some investment that spins off enough income to balance out the homeowner's rent-free situation. I work through some of that analysis.

I also mention a few of those extra expenses (and my commenters chimed in with some more).

MillionaireMommyND · 01-05-2008, 10:11 PM

Contrary to common financial advice, I get richer as a renter. Selling our home, renting, and investing our home equity and monthly savings as renters provided a big boost in our net worth. I became a millionaire while renting.

I posted a series of rent versus buy comparisons on my blog, and wow, did I raise a few eyebrows! We've all been led to believe that home-ownership is the ticket to personal wealth. NOT necessarily true. Check the math and compare your own housing choices based on where you live. The housing bubble created a huge disparity between rent costs and home prices in most locations. Rent cheap, invest your savings; then you can live off the income your investments provide you in retirement.

Here are a few of my rent vs buy analysis posts:

Rent, Grow Rich, Be Free

Rent vs Buy: The Hidden Cost Of Lost Opportunity

Dispelling The Myth That Home Ownership Is Your Best Investment

Can Renting Play A Part In The American Dream?

Renting beats owning, even in retirement; even if your mortgage is paid off. Here's why.

Real Estate Archives

Sophie · 01-05-2008, 11:00 PM

I've been leaning towards the rent side lately also...

Thanks for the links to your posts, Millionaire Mommy. I was planning to buy a small flat (this is Sydney, that's all I'll be able to afford!) later this year and spent all of last year diligently pinching the pennies, but I am considering postponing my purchase - maybe even for a long while.

VaranusK · 01-06-2008, 02:24 AM

I have both owned a home and rented, and today I live better renting. If I become unemployed I can just move again with my parents with nothing to loose, do not have the burden of getting moeny every month for a mortgage that will last 30 years.

Another point, here mortgages are for 25-35 years, how much do you think it is the value of a flat over 30 years old? considering the quality of the buildings here, I guess not that much. You have to count also taxes, repairs, interest... maybe I will change my mind someday, but at the current rates I'm not even considering buying a home.

01-04-2008, 04:12 PM	#1
amandajane Senior Member Join Date: Jan 2008 Location: New Zealand Posts: 376 Reputation: (146)	Rent or Own? I'm wondering on what people's thoughts are about renting a home vs buying. From what I can gather there are a lot of hidden costs to owning your own home. I've only ever rented but at times wished I had brought a house on a 20 year mortgage when I was first married at 18, it'd be paid off now. That's a scary thought! There is a big thing about owning property here in NZ, rental property particularly as there is a huge need for houses for rent, particularly here where I live. I'm happy though, my rent at the moment is $20 a week less than it was 5 years ago :0) So, what do you think? Rent or own? Last edited by amandajane : 01-04-2008 at 04:12 PM. Reason: I wanted to add a poll, can't see how to do it though

01-05-2008, 10:11 PM	#8
MillionaireMommyND Self-made Millionaire Join Date: Dec 2007 Location: USA Posts: 24 Reputation: (20)	I'm a financially-free millionaire and I choose... RENTING! Contrary to common financial advice, I get richer as a renter. Selling our home, renting, and investing our home equity and monthly savings as renters provided a big boost in our net worth. I became a millionaire while renting. I posted a series of rent versus buy comparisons on my blog, and wow, did I raise a few eyebrows! We've all been led to believe that home-ownership is the ticket to personal wealth. NOT necessarily true. Check the math and compare your own housing choices based on where you live. The housing bubble created a huge disparity between rent costs and home prices in most locations. Rent cheap, invest your savings; then you can live off the income your investments provide you in retirement. Here are a few of my rent vs buy analysis posts: Rent, Grow Rich, Be Free Rent vs Buy: The Hidden Cost Of Lost Opportunity Dispelling The Myth That Home Ownership Is Your Best Investment Can Renting Play A Part In The American Dream? Renting beats owning, even in retirement; even if your mortgage is paid off. Here's why. Real Estate Archives

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01-04-2008, 04:37 PM	#2
farley2k Member Join Date: Jan 2008 Posts: 43 Reputation: (14)	We own but I am not sure it is the best choice. It is wonderful in many ways but it does tie you down. Right now there is a slump around the US so if we wanted or needed to move to a different town we could be sol. On the other hand we are building up equity so hopefully we will have more money when we leave this house than when we came into it (but like any investment it could backfire) Trent at The Simple Dollar did several blog posts about the subject. He loves to play with math and work out where you come out ahead. I believe his last calculation said that if you invest what the difference would be between rent and mortgage (say rent was 800 and a mortgage was 1000 you would invest 200 a month) then a renter comes out with more money in 20 years. So from a math standpoint it seemed like renting wins but there were a lot of other factors which people talked about in his comment section. It is well worth checking out.

01-04-2008, 05:54 PM	#4
The Honest Dollar Member Join Date: Dec 2007 Location: New York Posts: 90 Reputation: (63)	I'm also a fan of Trent's blog. I think renting vs. owning is a very individual decision. Living in New York, it makes more sense to pay rent than to buy an apartment or house that would require $100,000 in just a down payment. A couple of considerations for people who are facing this decision: How long will you stay in your house, if you buy it? How much will you be able to sell the house for if you leave it before the mortgage runs out? What will be higher, rent or your monthly mortgage payment? How much higher? I'm sure there are financial calculators online to help with the decision as well. You can probably Google for them, since I can't think of a good one off the top of my head.

01-04-2008, 05:55 PM	#5
Joanne Senior Member Join Date: Jan 2008 Location: Originally from New York City, now in Florida since 2002. Posts: 131 Reputation: (43)	Owning a home was best for us. I didn't want to pay all that rent each month and have nothing to show for it...meaning it's not even mine. When we lived in NYC, rent was well over $1000 a month for a one bedroom apartment. We moved to Florida, bought a house and our morgage was $776 a month with $4,000 down. We also have much, much more room and property than we had before. I think it really depends on your situation.

01-05-2008, 02:53 PM	#6
Gootsy Senior Member Join Date: Jan 2008 Posts: 236 Reputation: (19)	I have become a huge fan of renting recently. Sometimes I feel like I want to burst out of my skin when I hear people talking about buying a home and how great an investment it is. The hidden costs are huge, and in my area, renting is just sooo much cheaper than the mortgage payments on the exact house if purchased.

01-05-2008, 04:02 PM	#7
Philip Brewer Wise Bread Blogger Join Date: Jul 2007 Location: Champaign, IL Posts: 26 Reputation: (15)	I talked about renting versus owning here: Renting is cheaper \| Wise Bread It's kind of an unconventional analysis. The usual practice is to look at the period during which the mortgage is being paid off, during which the owner is "building equity" and the renter is (maybe) "saving and investing" the difference between the rent payment and the mortgage payment. Instead, I start after the mortgage is over: the owner has a house, which he can live in rent-free, but with a bunch of expenses that the renter doesn't have (property taxes, garbage hauling, etc.). If you total up the expenses for both sides, you can calculate an "equivalent investment" that the renter would need to have to come out even--some investment that spins off enough income to balance out the homeowner's rent-free situation. I work through some of that analysis. I also mention a few of those extra expenses (and my commenters chimed in with some more).

01-05-2008, 11:00 PM	#9
Sophie Junior Member Join Date: Dec 2007 Location: Sydney, Oz Posts: 19 Reputation: (10)	I've been leaning towards the rent side lately also... Thanks for the links to your posts, Millionaire Mommy. I was planning to buy a small flat (this is Sydney, that's all I'll be able to afford!) later this year and spent all of last year diligently pinching the pennies, but I am considering postponing my purchase - maybe even for a long while.

01-06-2008, 02:24 AM	#10
VaranusK Member Join Date: Jan 2008 Posts: 66 Reputation: (10)	I have both owned a home and rented, and today I live better renting. If I become unemployed I can just move again with my parents with nothing to loose, do not have the burden of getting moeny every month for a mortgage that will last 30 years. Another point, here mortgages are for 25-35 years, how much do you think it is the value of a flat over 30 years old? considering the quality of the buildings here, I guess not that much. You have to count also taxes, repairs, interest... maybe I will change my mind someday, but at the current rates I'm not even considering buying a home.