Is buying a house really cheaper than renting?

[cicy33]

Ok, I haven't been on much these days, working WAYYYY to much but that is another story!

I was thinking the other day. Is buying a house really cheaper than renting? I will even factor in the idea that owning is simply better because it is "yours" . This is in my opinion the major factor in deciding whether it is truly cheaper or not. I believe it is not cheaper, more satisfying perhaps, but not cheaper. the numbers listed are comparable for my area. In yours the rent may be 1200 (like it was in NC before we moved) but the cost of a house there was like 150,000 for not much!

Lets say that Bob bought a house for 85,000 with 8% interest over 30 years. At the end of the 30 years Bob will have paid approximately: 139,531.96 in payments. Had he rented at 600 a month (depending on where you live) he would have paid 216,000. this appears to be a simple math problem wherein one would say YES, owning is cheaper. but is it???

add in taxes and insurance over the 30 years which would be about 51,000. This is allowing for 500 per year in taxes and 100 per month in insurance. (this may be low but at about what we are paying) okay so we are at 190,531.96. then add in the repairs and maintenance that would be done over the course of 30 years. I believe it is not out of option that one would spend somewhere around 20,000 over the course of 30 years. This would include: heating and air, water pipes that will possibly break, windows that will need replaced, etc. so now we are at 210,531.96. So we have arrived at a number that is actually very close to the same cost as renting. and that is if there is not any other pricier replacements or higher costs in taxes (like those will go higher, right?)

Now, the costs can change if the cost of renting is higher in your area, but I am also betting the cost of the house is higher there too! and taxes. so again, those numbers would be close.

I put this thread in only for the purpose of thinking. We did buy our house for the main reason I said, I want it to be mine and I can do whatever I want. Renting, in my opinion, is not a bad thing. If you rent you don't do the repairs, you call someone and they do it at no cost to you. you can move if you decided you don't like the neighborhood or if your job changes. If you own your own home these things can be more difficult. so anyone have any thoughts?

[disneysteve]

I think there are some faulty numbers there. First off, mortgage rates are nowhere near 8% right now. The average 30-year loan rate is 5.25% and if you search around, you can do better than that.

Next, you have to keep in mind that the mortgage payment is fixed for the life of the loan. It will be the same in year 30 as it is in year 1. Not so for rent. That will rise each year by 3-5% most likely so what starts at $600/month in year 1 might be $1,500 in year 30.

Lastly, the buyer, after 30 years, owns the home. Even with a modest 3% annual price appreciation, he has an asset worth over $205,000 (historical average is more like 5% which would be over $365,000). The renter has nothing. The buyer then has a paid off home and can continue to live there. The renter has to keep renting.

Not a financial factor, but with renting, there is an instability factor. At any time, the owner's circumstances could change and you could be forced to move when you don't want to. No thanks. We bought a house partly because we didn't want to move anymore. Counting college, I had moved 6 times in 10 years and was ready to settle down in my own place. We've been here over 15 years and have no plans to leave. It would be rather unusual to rent the same place for 15 years.

[cicy33]

All so true but the base foundation is also true the actual cost is close when you factor in everything. Also the cost of interest varies widely based upon credit scores. Some people have low interest others don't, so tried to put in an average not a super high not a super low. It would be unusual to rent for 15 years but I do know people that have. so unusual not unrealistic. also, remember I said that not all people want to stay in the same place. I am finally at an age that I will not move again (probably) but I have moved AT LEAST 10 times in the past 10 years, sometimes due to jobs, some due to military, some due to I love to see other places. So the true cost of buying is also tied to an emotional cost not just a financial cost.

[cicy33]

P.S. I am over 40 now so staying in one place for me came late in life.

[disneysteve]

I am finally at an age that I will not move again (probably) but I have moved AT LEAST 10 times in the past 10 years, sometimes due to jobs, some due to military, some due to I love to see other places. So the true cost of buying is also tied to an emotional cost not just a financial cost.

Absolutely true. If you expect to move within a few years, buying makes no sense to me. I'll never understand people who buy knowing for sure that they will only be staying for less than 5 years. I'd never even consider buying under those circumstances. Buying requires a long-term commitment. If you aren't at a place in your life where you are ready to make that commitment, you probably shouldn't be buying.

When my wife and I first got married, we rented. I was still a resident and did not know where my career would take me once I finished training. My wife had a decent job in retail management but that was something she could easily find almost anywhere we ended up. Once I finished training and got a job that I liked and felt I would stay at long-term, only then did we start house hunting.

[kork13]

It's seems to be very dependent on where you are, what you buy/rent, and what you're looking for. Some people will find it cheaper to buy, others cheaper to rent. In general, I just don't think there should be any rush to buy. If you find something that you really like and you are in a position to allow such a commitment, then by all means, buy a home. But until then, rent. But that's just me... I don't plan to buy a place for at least 5-8 years, and even though I could afford to buy earlier, I just don't think it will be the 'right time' for me for quite a while. It's more about your "total" situation than simply a question of "affording" a house, IMO.

[SallyinChicago]

Ok, I haven't been on much these days, working WAYYYY to much but that is another story!



I put this thread in only for the purpose of thinking. We did buy our house for the main reason I said, I want it to be mine and I can do whatever I want. Renting, in my opinion, is not a bad thing. If you rent you don't do the repairs, you call someone and they do it at no cost to you. you can move if you decided you don't like the neighborhood or if your job changes. If you own your own home these things can be more difficult. so anyone have any thoughts?

there are only two reasons to buy: You have a family and intend to stay in the home long-term; or you're an investor and use the house for residuals.

Other than that, renting is cheaper because you don't have to bother with taxes, utilities, upkeep, all the things that LLs are bothered with. Therefore you can take your savings and put it into money accounts.

That's just my opinion. I've been renting all my life and have hit un/emp about three times and was glad I was renting vs. buying, otherwise I would have struggled to pay the mortgage + other fees.

[SallyinChicago]

It's seems to be very dependent on where you are, what you buy/rent, and what you're looking for. Some people will find it cheaper to buy, others cheaper to rent. In general, I just don't think there should be any rush to buy. If you find something that you really like and you are in a position to allow such a commitment, then by all means, buy a home. But until then, rent. But that's just me... I don't plan to buy a place for at least 5-8 years, and even though I could afford to buy earlier, I just don't think it will be the 'right time' for me for quite a while. It's more about your "total" situation than simply a question of "affording" a house, IMO.

If you buy, put at least 50% down or pay it all in cash. Do not have a30 yr mortg hanging out there.

[MonkeyMama]

We bought our home because it was cheaper than renting. Particularly our first home in a very high cost area. My understanding is that this is usually a pretty rare occurence.

I mean - no doubt about it - buying a condo and paying all the maintenance and taxes was FAR cheaper than renting anything comparable. Then, you get the tax breaks to boot.

As others mentioned, the reason we wanted to buy a home is because we value stability. It's unlikely we will move anywhere, anytime soon. Renting is very volatile here. My renting friends get kicked out, on average, every year. In the boom landlords sold, sold, sold. In the bust, they foreclose. Renting an apartment averts some of that risk, but we wanted to live in a larger, more peaceful space, all the same. & apartment rents were sky high when we first bought.

Pretty much, I think renting sucks eggs. But we were able to have about $1500 PITI/HOA everything on an apartment (condo) that rented for $3500/month. Seriously. & the place was nothing to write home about.

I think when you are young and the rent situation isn't insanity - renting makes a lot of sense. Which probably applies to 90% of the US population.

[bigredmachine05]

One also needs to look at the opportunity cost of tying money into equity into a house/condo. So, if one were to buy a 500k house, and if one could get 4% a year in a savings account, that would be 20k per year lost on having equity in the house.

Personally, I have always rented. I have found I would save so little money buy buying something it isn't worth the hassle. If something breaks, I make a phone call, the landlord fixes what needs fixing the next day. No big deal. I know exactly to the penny what I will spend on housing each year. No surprises.

[elessar78]

My wife and I had the discussion on the drive home from visiting family today on whether a house should be an investment or a place to live for us. Not that it has to be mutually exclusive but just for argument's sake. We both think that it should be primarily a place to live and if it increases in value, then we'll consider ourselves lucky.

As a renter, I go into these threads looking for solace that I'm not missing the boat by not purchasing a home. I rationalize it that it's not for us right now because I'm not certain I want to make a commitment to this area for the next 10 years. Also, because it's not a financial "slam dunk" yet. My worry is with purchasing is that I can't calculate the cost of ownership to a comfortable degree of certainty. The numbers I come up with (which always err on the side of caution) put me in a financial situation I don't want to be in.

It either has us buying a home that is uber-cheap and puts us in an area neither of us would like to live, or in a fixer-upper or buying more house than we can afford. Right now as we work to get out of debt, I like my "operating costs" to be predictable.

[jIM_Ohio]

Try this math:

Age 25
mortgage of 186k for 5% (payment of $998.49)
interest paid over 30 years $173,455.76
total paid over 30 years $360,000 (rounded)
assume paid $2500 in annual taxes. ($75,000 total)
best guess is of the $173k paid in interest, 15% or 25% is received back on tax return, same with $75k of property taxes. 62k received back in tax return.

So out of pocket net expense is just under 300k

or Age 25 rents for $750 per year
assume rent increases 1% per year
total paid over 30 years is 289k (rounded).

Here is the kicker

in year 31
the renter still pays rent
I have that as $991/month or $11,900 in annual expense (the $750 adjusting 1% per year for inflation).

For retirement planning, I do not include rent in my 60k per year worth of income I need to generate. If I rented, I would need to increase my retirement goal to 72k per year which probably means I need to work another 7 years to let my money compound enough.

My summary would be
renting makes sense if you choose to work longer
owning makes most financial sense if you want financial independence.

[Ima saver]

For me, it has always been much cheaper to own a home. Of course, I am married to a builder who can do everything. (plumbing, electric, tile, hardwood floors, cabinets, etc.) Plus, we have always had a paid off home since we have been married. Since the houses are built right, there is very little upkeep. I couldn't imagine paying rent ever. I bought my first home at age 21 and paid it off by age 32.

[Caoineag]

Renting probably would have been a little bit cheaper in the short term thanks to house repairs and our willingness previously to rent small apartments (not even half the size of our current home). That said, rent was about to go up alot OR we would have had to move. No thank you.

In the long run, buying for us will be cheaper because the house is centrally located, we have the ability to control utility costs (tiny apartment actually cost more for utilities), and we can fix things right the first time. Not to mention principal and interest disappear in 14 more years. And all that is without getting a tax break because our mortgage is too small for us to itemize.