RENTING v. OWNING

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Renting

Is “Renting Just Throwing Your Money Away?”

When I was growing up, buying a home was expected, not merely as a step of financial success, but also of maturity and living the American Dream. Further, there was this assumption that houses always, always, always go up in value. Then the housing crisis of 2008 hit.

Renting is underrated. Renting does get you a place to live, greater flexibility, and someone else pays for repairs, maintenance, or other issues that come up. If the neighborhood declines, you can just move. What if your job moves, or you can’t pursue your career locally? Or if you have a special needs child that can get the best therapy elsewhere? What if you get disabled for a while, will your family be close? And, while rentals do not build up equity, you don’t have to come up with 20% down, either. On the flip side, rent does tend to increase over time. Equity can build in a home, or may not.

Home ownership, if it can be afforded, has real advantages as well. If it is a cash purchase, it is yours. And if you finance, tax credits help offset some of the cost of home ownership, but usually only interest. So you get .25 cents back for every dollar you pay in interest. Then there are property taxes, higher insurance, and repairs. And, if the area goes south, you are left there with a sign in your yard. To just run the money aspects, The New York Times has an easy to use Rent vs. Buy calculator on
nytimes.com.

Most folks think if they buy a house for $100,000 on a mortgage, and sell it five years later for $125,000, they “made $25,000.” This is not even close to correct. When you buy a house for $100,000 on a mortgage, there are usually closing costs, points, origination fees and a down payment. On a 30-year-note, you pay more interest than principal to the bank, because interest is front-loaded. Then there are the costs of repairs and upgrades, real estate commissions, and taxes and insurance paid. All this greatly reduces the “profit” one thinks they have made.

Many will remind you that your housing costs shouldn’t be more than 25% of your take-home pay. But your note is only part of that. If you overbuy, you’ll be house poor.

Renting is no longer a sign of financial weakness. Sometimes it is a sign of wisdom.

Mr. Peel seeks justice for those injured in motorcycle, truck and car accidents, disability and medical malpractice. He often addresses churches, clubs and groups without charge. Mr. Peel may be reached through PeelLawFirm.com wherein other articles may be accessed.