Rent or Buy?

[KW4MW]

I always thought that the smart thing to do was to use my money to invest in a house instead of throwing rent money down a hole every month. Recently someone has tried to explain to me how it is so much better to rent an apartment instead of purchasing a house. I don't see the logic of his statement but he is a self acclaimed smart guy.

Can anyone show me the advantages of renting over buying in the long run?

[KC0VWU]

I'm a "self acclaimed" smart guy too so I'll try to answer your question: It depends on your individual circumstances.

[KI4ITV]

Buy low, sell high.
Rent if you have to buy high in a declining market.
(a increase in the number of title loan/payday loan shops in the town is a bad sign) http://www.qrz.com/iB_html/non-cgi/emoticons/laugh.gif


edited- to add credentials "certified knowsome####"

[ab1ga]

Quote[/b] (KW4MW @ April 08 2007,21:25)]Can anyone show me the advantages of renting over buying in the long run?
Boy, there's a question! And the answer depends on a lot of factors.

There are a few scenarios where renting makes more sense:

a. Toward the peak of the housing bubble. Nothing ever flattens out after a rise, there's always a downward correction. If you buy at the peak, when house prices drop you eat the lost value when you sell the house again.

b. If you move a lot, renting can be better. If you look at the breakout of a fixed payment mortgage, you'll find that early in the life of the mortgage most of what you're paying is interest on the borrowed money, not equity. If you move every three years, say, you never actually build up any equity unless the real estate market is booming and you time it just right. Plus, every time you buy a home you have closing costs, which is pure expense for you.

c. Renting is always better if you do not understand the financial engineering of the mortgage or you have to rely on good luck to pay the loan. I don't want to bash adjustable rate loans and other vehicles because for some people they are the right thing, but I'd always ask about a 30 year fixed mortgage. It's the closest thing to a baseline the industry has, the payments are predictable, and if the monthly payment is outrageous that's a good indicator you may need more down payment or its time to consider a smaller property.

d. Renting also lets you run away. Neighborhoods can slide, and in some cases more quickly than you can catch on and sell you house. For instance, I feel sorry for those folks in North Carolina and Utah who suddenly had pig farms move in nearby. When the wind blows the wrong way you can't stand to be there, they can't unload their house, and the farms are legal in every way so they're just stuck.

I still think it's a good idea for people to own homes, provided they stay away from ham-hating COAs. http://www.qrz.com/iB_html/non-cgi/emoticons/smile.gif If you buy the right thing at the right time you have a fairly reliable asset you can build equity in and use as a financial reservoir in times of need. Renters could do the same if they took the difference between their rent and the sum of mortgate, taxes and insurance on a home and invested it every month, but few do.

[K0RGR]

I still think it's better to own a home, but I'm also a living example of how NOT to do it.

I live in a part of the country where real estate appreciates about 3% a year, on average.

I've always had shorter term mortgages - 15 or 10 years.
These tend to be highly 'front-end-loaded' with most of the interest being paid in the first half of the loan. It wasn't until last year that I realized how big a deal this is. My income taxes went up dramatically, because the amount of interest paid dropped by a couple kilobucks.

But, the disgusting thing is that I borrowed about 70,000 in 1986. I paid through the nose on a 15 year mortgage until I moved in 1993. We refinanced at a much lower rate in 2000 on a 10 year mortgage.

I still owe about $60,000. It will be paid off in another 4 years if I can put up with the outrageously high mortgage payments until then. If I refinanced again, I could have less than half the payment I do now.

The house has almost doubled in value in 14 years, so there's something good happening here. Hopefully, in a few years, I can sell this big white elephant and buy something smaller and more rural for cash.

[WF7A]

Just a footnote to what was mentioned above: You can save a lot on the closing costs if you sell the house on your own, sans realtor; to pay someone 7% of the sales price just to have him or her move paper around is ridiculous!

I sold my last home on my own and it was frighteningly easy: a two-page bill of sale, filing the paperwork at the escrow office, and that was pretty much it.

However...

In the current sales environment, where there's a huge surplus of houses for sale, it could take a while to find a buyer this way. There are some listing services that'll charge 4% or so to list a house on the Multiple Listing Service (MLS), so if you're eager to sell that might be the best way to do it.

[KI4PEQ]

I'm a homeowner, tax advantages don't mean a lot to me though as I do not have taxable income. But the idea I can do anything short of opening a hog rendering plant on my land appeals to me, and I don't have to worry about CC&R's either.

I go by this simple rule of thumb when it comes to the buy versus rent conundrum:

IF IT FLIES, FORNICATES, OR FLOATS, IT IS USUALLY MUCH CHEAPER TO RENT!

[N9XR]

The American Dream is always to own a home. No brainer.

However the question was Quote[/b] ]Recently someone has tried to explain to me how it is so much better to rent an apartment instead of purchasing a house. Can anyone show me the advantages of renting over buying in the long run?

The answer can come in simple mathematics. When you buy your home and when you plan to sell it can create difficult situations if that period is short. I have known people in certain places at certain times where they wanted to move, but the housing market took a dive before they wanted to sell, and they were actually upside down on their loan after 10 years. Yeouch.

If they had rented, they could have moved when they wanted to.

Some areas of the country, the housing markets are volatile. I know they were bad when I lived in Austin, TX. Those prices were up and down constantly.

Also, paying interest minus the tax breaks for paying interest on the home is another zinger. If the housing market does not pick up, rent can be cheaper than those interest rates.

[kl7aj]

My daughter lived for about 6 years with various roommates, renting an apartment. After a few years of more than occasionally covering the rent of her deadbeat roommates, she decided that she could just as easily buy a house. She saved up for a LARGE down payment on a fixer-upper, learned how to do all her own fixer-upping, and is happy as a clam. She's made it a personal palace. It's small, but it's all hers!

Eric

[WA3WDR]

Rent, if you are going to live in one of the real-estate bubble locations. #Buy, if you are in a place where property values are realistic.

My property value skyrocketed 300% in six years. #All it means is that my taxes went through the roof. #Well, I DID make some improvements around the condos. #But it's just a run-down little condo! #If this doesn't turn around, I might sell and take the windfall profit, and rent for a while before buying again when things simmer down.

The reason my condo's 'value' jumped so much is because everything else was ridiculous - new condos stacked up and shoehorned onto dead-end streets and going for $600K to $800K, etc. #People wanting to live in this neck of the woods had little other option but to reach for the low end, which became much more expensive because of the level of demand and the willingness and easy ability to borrow, borrow, and borrow. #Some people are going under, and the 'sub-prime' mortgage companies are starting to fall. #It's gonna really get bad, I think.

So, be smart.

[k7kwh]

And then there are the people like me.....

Middle class income, but shut out of the housing market by prices. #

Yes, I want my own home.

But, try telling a mortgage banker that you want a mortgage on a $200,000 home when your salary is $45,000/year.

More than likely, you will never see the loan application package, or worse case scenario, you will be out several hundred dollars for application, credit report, appraisal and "processing" fees when they hand you the denial notice.

Not to mention your earnest money when you made the offer on a home (the seller does not legally have to return your earnest money if you do not complete the transaction; however, 90% or more do return it if the loan was denied for other than bad credit).

What is sorely needed today is some kind of price controlling on homes; mixing in affordable homes in new subdivisions, or, Congress modifying the tax code to give non-homeowners at least a portion of the mortgage interest deduction homeowners get...thatr may give some a fighting chance on bein g able to put away some money towards a home.

K7KWH

[n2nh]

Quote[/b] (KW4MW @ April 08 2007,22:25)]I don't see the logic of his statement but he is a self acclaimed smart guy.
"Self-acclaimed smart guy"??

Now who could that be? Oh, you meant yourself didn't you scholar dude? Not going bi-polar too now are you?
HAW!