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Do you really Lose Money trying to Rent Houses and not Buying?

Posted by Mr. Hachis | On: Oct 25 2010

You know how some people discover what they consider to be a great truth of life, and they can't stop trying to convert everyone around them? That's been me most of the last decade; and my great truth of life - renting is always better than buying. For instance, when my brother thought of giving up his low-priced two-bedroom rental in the Bronx once, he got an earful out of me. I go out of my way too - when my boss got transferred to the Arizona branch once, I actually went to the trouble of putting together a full Excel page to help him see how to rent houses over there would be infinitely more profitable over the long run than buying.

So why do I believe that renting is such a smart thing? Ten years ago, home prices were so high that you could easily get by on less if you rented. And since home prices are usually on a roller coaster, it would be a pretty smart move to not put so much of your personal worth into something like an owned home. However, my boss,my family and my friends are going to be pretty mad at how I've shifted allegiances now. I actually have been a renter in New York my whole life; things began to change when last month I heard that I would be asked to shift to the Pittsburgh office. My first thought was that we would go and begin to look to rent houses just as we always had. But things have changed over the last three years. Home prices have cratered. When I thought about it, I saw that there was really nothing else for me to do but to switch sides.

We are always being told that anyone who goes to rent houses for his family all the time is actually building up his landlord's personal worth, and losing out on his own. They tell you that the rent you pay is practically money down the drain. Actually, that could be a piece of convenient fiction invented by real estate agents who like the commissions they get selling houses. Certainly, the rent you pay, you're never to see again. But homebuying isn't just the price you pay on the home itself. There are property taxes, closing costs, maintenance and repairs, the interest you pay on your mortgage and so much more. And also, it's not just your monthly payments that go out of your pocket when you invest in a home - it's the down payment you make too; and this is money you could actually invest in the stock market for a nice return. Is it beginning to look like people who vrent houses aren't completely out of their mind?

In the end, to rent houses to live in actually works out to something a shade cheaper. But owning a home has certain benefits you can't put a price on - for instance, there's the feeling of settling into your own home, and being able to do anything, when you wish to remodel. But let's look at the whole cost issue a little more closely. Let's take a standard house, something you're willing to rent. The price you would have to pay for exactly such a house to buy it, would cost a certain sum. Let's divide that sum by the amount of money you would have to pay to rent it each year. The figure you'd get if you divided it that way, would be the number of years of rent paying it would take you to actually end up paying the price of house in rent.

Now that's a pretty important figure - the number of years of rent-paying it would take before youended up paying as much as you would to buy a place. In most places in the interior of the nation, that figure would be about 15 years. Along the coasts, where homes are much more expensive, that figure would be between 20 and 40 years. Here's the deal - anything above 20 years for an owned house, and you're paying a lot more to own the house that you would to rent it. If you add on the cost of maintaining a house you owned, it's a no-brainer - you actually save something like $500 each month if you rent a house, as opposed to owned it.

So here's the thing you need to do before you decide on whether to own or rent. An ownedhouses makes a lot of sense when it would take less than 16 years of rent to buy it. If it ends up taking longer than 16 years of rent to buy a home, you're better off trying to rent houses than buying.

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1 Comment

  1. Rob Fonner says:

    I bought ten years ago, first home. Wished I have stayed with rentals. We're riding this roller coaster of up and down values. Underwater about 75K or so. Bye, bye house.

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