i’d say if you are sure to live in the same house for the rest of your active life and are concerned with your quality of life, then buy. If you expect to sell though, real estate agents will get the lion’s share.

if you rent and invest the difference, the worth of your assets should grow faster than a mortgage get paid back for the same amount out of pocket every month. so the downpayment money will always be available to buy that house. with a large enough downpayment, the mortgage will shrink to the amount paid to rent a similar house anyway.

since those who decide the tax laws are probably not renters, owners might get advantages from the fiscal point of view. so there’s no absolute good answer here, it will depend where you live, prices in that area…

one sure thing is that buying a bigger house every 7-8 years and finally downsize once the kids leave is not the way to go. oh yea, and manual skills are way more profitable if you own since you have to do or pay for the maintenance.

Please feel free to advise me on my own sell-or rent dilemma:
I have been wrestling with our home expenses, and I am considering selling and renting for a few years and investing our equity. We bought our house two years ago in an expensive area. It was more than we wanted to pay when we started looking, but at the time I talked myself into it thinking that even if it would be tough at first, it’s a great area, great house, will only go up in value.

We made a bad decision- we made less than we thought on the condo we sold after buying (that was a big ‘duh!’), higher utilities ($3500 a year on oil!), had to paint the entire outside of the house, and had an expensive indoor plumbing repair. My part-time freelance work was not bringing in enough, so I went full-time, but full time childcare costs a lot too (though still worth it to work full time). We are so strapped right now- I cook all our meals and we have no car loans or credit cards, but some months we don’t even cover the bills. Not to mention we both have hour long commutes, and we want to relax on the weekend, and not constantly work on maintaining our home. It has been a dream house nightmare.

Anyway, in my expensive area, we could rent a townhouse near our jobs for 1/2 what we are paying for our house. (Buying one would come out to the same as our current house, however) Of course, we are going to spend some of our equity on selling fees and paying off the HE loan, but we would have a good little chunk to invest. I am trying to run the numbers but there are two wild cards for me- possible appreciation of the house for the next 3 years, vs possible investment potential for equity chunk.
I am trying not to make another bad decision here! But it looks like in my case the lower costs that would enable us to put a bit in savings and afford our life a little better, and the investment of the equity stack up quite well against the estimated appreciation of the house and the tax deduction, especially when you factor in the utilities and home maintenence. I’m not sure how to facotr in that we would only walk away with 60% of what we put down as a downpayment after 2 years, but I’m willing to take that hit to improve the situation.

Does anyone really know what sort of percentage I could make on the equity in 3-5 years if I invested it? I know that you aren’t supposed to be too risky with short-term investing. Any advice?

Any advice in general? It would be appreciated!

In my area a renter is throwing away money while a home owner is paying down ownership in value.

spent 460k on a home, now worth 700k in two years. I’m guessing that the poster only put a portion of the price down, and pays a mortgage on the remainder. Let’s say they did 20% as a down payment, so about $92k down. Over two years, it’s worth an extra $240k. When you add the mortgage payments and additional expenses over the two years of ownership, let’s say a couple thousand a month…

That’s a gain of $120k equity per year. Sounds a lot more like 100% return on investment to me.

Here’s the great thing about real estate that no one is discussing: Try leveraging a few hundred dollars per month in stocks to purchase thousands in actual assets. Depending on your down payment, you can return many times over on your investment.

As for me — I’ll take home ownership for 5-10 years, move and cash out the equity created, then get a new place and put a down payment down, investing the rest of my funds.

Keep in mind, you could hedge this argument by owning a home, taking a tax writeoff on all of your mortgage interest, and taking a home equity line of credit and investing the funds in a higher-yielding investment avenue.

That’s something close to 50% return on investment per year. Hopefully you got lucky and bought in a down market and will sell in an up market. Call us in 10 years and let us know. :)

My complaint regarding the article is the author doesn’t take into account the return people will realize on a home purchase because of the leverage involved. If someone takes out a mortgage at a reasonable interest rate and dutifully makes the payment they will almost certainly earn a solid rate of return on their investment.

On the other hand, my single brother who lives in western NY has never owned property, and given his situation and where he is comfortable living, renting and investing the difference would be the best bet for him and would probably net him more in the long run if he had the finacial disipline assumed in the MSN article and mentioned in the discussions above.

Like any life decision, money should be part of it, but you really need to decide what it is you and yours need, desire, value, etc. and then look at all your options.

Living in the north can be more exspensive for homeowners, especially with oil, snow removal. We do save on AC in the summer time though. There are some things in general that you save on with a house though, like being able to have a washer/dryer (and a yard to have a clothes line). Feeding quarters into a machine gets awfully exspensive. A garden is also something that’s difficult to have when renting. Some landlords, like mine, won’t even allow flowers in the yard. If I want to get a tan, I have to pay to go tanning or drive to the beach, costing $15 per trip. Renting means less privacy, more noise, and pesky neighbors, especially when several apts. are stacked up on each other.

Paying rent for 10 years is rather depressing as far as I’m concerned. It is indeed cheaper for me to rent but that’s money I will never see again.

The *potential* return is much greater for renting than it is for buying (2.6 million in the bank after 30 years vs. a couple hundred K), but I believe the actual return is much closer to a wash, or even leans in favor of the buyer.

Otherwise, we would be a nation full of millionaire renters and nobody would own a house, but if you look at people who have millions, how many achieved their wealth by renting? Maybe some did, but probably not the vast majority.

When you say, you’d be foolish to “buy a house when you can just rent one and get a vastly greater return for your money” you might as well say “you would be foolish to go to college and pursue a career because you can make so much more money being a movie star”.

Yeah, potentially you can, but how many people actually do that? Very few.

Its all about risk. Renting is, IMO, a riskier venture overall than buying.

I have a great apartment which is fairly cheap and the rent includes not only water, sewer, and garbage, but also heat, hot water, and basic cable.

When I added those costs (that I’m avoiding now) to the ownership costs like taxes, maintenance, and insurance, I figured that you could give me a house for free and I still couldn’t live in it as cheaply as I can live in my apartment.

Anyway, my brother calculated how much it would cost him if he had a mortgage (much like Trent did in the example) and put away the difference between that and his rent in a simple savings account. He wanted enough to do a decent down payment when he decided to actually buy. Two years later he got married. The rent went up, but he continued the same strategy. After about five more years, he decided he had enough to start looking for the house to buy.

Well, as he started looking at different options, he was kinda surprised when he looked at the “build your own” option. If he just bought the land and built a small house, he figured he could pretty much do the entire thing with what he had already saved. He wasn’t really a builder, but both his father and his wife’s father were, and he had several brothers with varying degrees of building experience. We all helped out in some way or another. I spent a few days there myself, helping with the grunt work. It was three months of hard work for him, and not everything went as planned. He had some issues with the well, the ground being rockier than he had expected, and the furnace was damaged in some way due to inexperience. But as I recall he came in at only about $2000 over budget, which I was happy to lend him for 4 months or so. I remember when they moved in there wasn’t even any finish siding on the outside.

But he didn’t have ANY mortgage payment after that. So he took some of the money he would have been using for a mortgage, and started his upgrade fund. The first year, it was siding and finishing the sheet-rock on the upstairs rooms. I don’t know exactly how he runs his upgrade fund, but here it is 15 or so years later, and he has built it into a very nice place. He has a huge garage, upgraded kitchen cabinets, concrete carport and turnaround, serious playhouse and swingset, orchard, nice tile and carpet, piano, and a lot of other things. All on a very modest salary.

In contrast, his friend bought the land next door and had a nice house built with the conventional 30-year mortgage. For the first few years, his friend’s house was nicer. It started out with the finished upstairs, nicer kitchen cabinets, actual siding on the outside, and better furniture. However, after 15 years, the mortgage is only half paid, and the contrast in quality at this point is remarkable.

I’ve always considered my brother a pretty wise man. I know this strategy can’t work for everyone, but it sure worked well for him!

An owned property would allow me to set things up to suit myself (e.g. put up more low shelves in a kitchen, no-mow lawn cover) but also burden me with additional requirements. If I buy a house (say in Ann Arbor or Madison, WI), will I be able to work fewer hours to make up for the time spent on walls and gutters? Will the stress of walls and gutters keep me from hanging out at the library? If my pneumonia comes back, or if I sustain an injury, or if I’m just too small, can I count on finding help to shovel the snow? Will I be able to set up a system to take care of myself?

I would also need to think about the daily lives of people I might be living with. With what probability will I need to allow for a second office or workshop space? Counterfactually, if I were having kids, I’d also want to make sure they had some peers on that street.

basically, what i was trying to say through this convoluted anecdote is that the decision to buy should be taken very carefully. renting is much better if you want flexibility, reduced financial liability and hassle. however if you plan on staying at one place long term and the market is not completely skewed,and you find a house you love, you can then consider buying as a good option. you should not rely on the house value appreciating and should factor for paying the mortgage even when your circumstances change due to childbirth, redundancy, illness etc. if any slight change in your life can scupper your finans and jeopardise your mortgage repayment, then probably it is not the right time to buy. other options could be to buy a house and take in a lodger to help with the costs. but it probably wont suit everyone.

Yes it matters if you move a lot. 99.99% of the time, if you’re only going to live somewhere for a short timeframe, you’ll come out ahead by renting. The transaction fees of buying/selling a home are huge, and it’s unlikely you’ll make up for those fees within a year or two

I would note that I am more than happy to make anyone rich, as long as I am achieving my goals and those goals are good. I don’t care who gets “rich off me” as long as I make the progress I want. :)

I think envy plays far to great a role in modern society. And as a future landlord, I hope to find others that are very happy to pay off houses for me, even if it is for a season in their lives!

Brad