Rent vs Mortgage: Calculating Tangible and Intangible Costs

We are still in the midst of what most would consider a great time to buy a house. Benefits are plenty for first time home buyers and those looking to trade up alike, including sizable tax credits and low interest rates. I personally know a number of people currently renting a house that are finally considering buying a new home.

One argument used to convert renters to homeowners is a side-by-side comparison of mortgage payments to monthly rent. Realtors often like to tell potential buyers that renting is like “throwing money away.” I happen to disagree with that logic, and think renting makes a lot of sense in certain scenarios. Considering the lessons we’ve all learned from the 2008 real estate bubble, building equity is no longer a sure thing either.

Comparing rent to mortgages and declaring mortgages a cheaper option is to compare apples and oranges. Let’s assume a potential home buyer is considering two houses of equivalent square footage. One home rents for $1,000 a month. The other home could be financed with a principal payment of $1,000. Based on these two costs alone the deals look equal, however there are a number of other factors to consider.

Property taxes. One of the benefits of renting is that you are not responsible for paying property taxes on the home. The bill still comes to your landlord. Of course, if you own a home you get a tax deduction on mortgage interest, but depending on your income this may or may not be a wash.

Insurance. Homeowners insurance is practically a requirement when buying a home (in fact, most mortgages require it to underwrite the loan, and even if they didn’t it is still a good idea). Renters should investigate renters insurance as it is typically very cheap relative to the contents of your rented home. Since renter’s insurance is usually cheaper than home owner’s insurance, renters have a slight advantage here.

Maintenance/Repairs. This is the big one. Hot water heater bursts in the middle of the night and floods your utility room. Who pays for the repairs and cost to replace the water heater? If you own the home it will come from your emergency fund (hopefully). If you rent, a quick call to the landlord is all that’s required and they are on the hook for repairs.

Same for ongoing maintenance of the property. Landlords are responsible for things like painting or replacing siding on the exterior of the home, putting on a new roof, and any other updates required over the years. Renters are typically responsible for things like lawn care and keeping the interior in good shape (walls, carpet, etc.).

For this reason, it is important to have a solid emergency fund before taking the plunge into home ownership. Take it from me, if you buy a home without much in savings, something expensive will break within the first 90 days. It’s a sure bet. If it can happen, it will.

Freedom. Even though freedom is not a tangible cost of renting or home ownership, it is still a very important factor when choosing where to live. Renters typically sign a lease or rental agreement for a specified time (usually one year). Most people who buy a home sign a 30-year mortgage, and unless they pay off the mortgage early, they will be stuck with the debt for decades to come.

Guess who can pick up and move easier if the local economy sours? Guess who can move to a different part of the country if they decide the heat/cold no longer agrees with them? Yep, it is the renters. Buying a house is a big commitment, and if you are still unsure about planting roots in your community, job, etc. then it might make sense to rent a little longer.

It is a great time to buy a home with plenty of inventory, motivated sellers, tax incentives and low rates. But none of those things matter if you are not in an position to buy. Resist taking on the added responsibility, and the debt, if you are not ready.

Comments

  1. I agree with most of your statements, especially about waiting til you are ready and liquidity.

    However, you neglected to mention the biggest benefit of owning your home. Eventually, you own it completely. Either you pay it off early (last house 10 yrs) or you pay cash (this house) and end up with NO mortgage.

    My taxes and insurance run me $100 per month. As I did all the needed repairs when I bought this house (new windows, plumbing, electric, appliances and a 50 yr roof), I will have virtually NO maintenance for years and years to come.

    Looking at retirement within 10 years of my buying this house, I have NO mortgage, and total peace of mind that I will live here forever for only the cost of taxes and insurance – which cannot rise to over $200/month in the rest of my lifetime due to % restrictions.

    Peace of mind….no mortgage… THAT’s the reason to buy a home :)

  2. Oh, if I had known this earlier! My wife and I live in military housing now (the ultimate landlord!), but in Little Rock, I decided that we should buy a house, and while it was an awesome starter home, it wasn’t really worth it. We had to replace the carpet, completely repaint and make other repairs. We managed to sell the house for a profit of $3000, which we immediately had to take to the bank so that we could pay back the repairs!

    We made zero dollars on the house in the end. Renting would have been better.

  3. Renting can be best in many situations, but there is one BIG downside. While you have the freedom to move, you might also find yourself with no choice but to move.

    Landlords sell, landlords raise the rent, landlords turn out to be slackers about vital repairs. (The front door to my old apartment building once broke, and we went without a lock for three nights. Yes, our individual units had locks. But we didn’t exactly live in Mayberry.)

    Sure, you could find yourself stuck in the home you buy – but that’s the shadow side of stability. Even in today’s climate, I think buyers who are financially prepared for homeownership benefit in many ways – the least of which is financial.

  4. We own and although we love our house, there is definitely something to be said for renting. Our neighbors are currently trying to sell so they can rent a bigger home while they save more to buy a bigger home. Not sure how that is going to go since there are 6 homes for sale on our street and 2 are the same size/price as theirs. If they had just done that in the first place, they could just move.

    Also, you forgot the temptation to always renovate buy way of paint, new curtains, art, new fixtures, etc.

    And also, it’s not just the MONEY involved in home ownership, it’s the TIME. We bought an old house, so there is always something. But, even with a new house, there is always something. Landscaping care is time consuming (mowing and watering, etc). We also have a fence and deck that needs pressure washing and gutters that need cleaning and windows that need repairing. Even if you decide to pay someone to do these things, you have to take time to research the right company, etc.

    we definitely have a love/hate relationship with our house.

  5. Thanks for this post. I’ve never owned a home, and I’ve never had a desire to. I have the freedom to pack up my possessions and my dogs and travel to another location of the country for employment opportunities, which I’ve done three times – all for wonderful, personal growth and career building positions. Had I owned a home, I would have been tied to one location without the freedom to pack up and go until the house was sold.

    My home in Indiana was older, and because of minerals (or something) in the water, the water heater broke twice in the night while I lived there. I was not responsible for the replacements, nor was I responsible for the resulting damage to the basement.

    I now live in a beautiful apartment that is larger than many homes in the area. My rent just went DOWN because the market rent for the area dropped. I don’t have to worry about maintaining a yard, nor do I have to worry about any of the appliances breaking. I do realize that I’ve been extremely lucky with landlords, and I’m thankful for that.

    Home ownership is not for everyone. I’ve heard for so many years that I should buy a home, but I’ve never had that desire. It might be worth it to eventually not have a mortgage payment, but then I’d be tied to a certain area that I might not want to stay in. I’m so much happier this way.

  6. Renting costs money. Home ownership costs money. Often different amounts of money. I’ve rented and owned and owned and rented again — so I feel like I have a good perspective — and my attitude is that this is not primarily a financial decision. Sure, there’s money involved, but comparing dollars isn’t the best method for making a decision here. More critically:

    Freedom versus stability
    No maintenance versus personal choice
    Short- versus long-term goals

    These are the metrics that really matter when making a decision. The numbers are a lot less relevant (as long as you can afford them, I’m not advocating being house poor or rent poor).

  7. my wife and i were talking on this topic last night, after i read a chapter in The Automatic Millionaire on home ownership. we have no debt, but only about 1 months emergency fund. we only have 1 income. we save about $1000/mo distributed amongst various categories (car repair fund, emergency fund, airplane ticket fund, etc) we have basically no $ for a down payment.

    we’ve thought about trying to own a home that has a mortgage less than or equal to our current rent percentage (22%), but i feel hesitant to take a loan with no money down; and feel torn that at our current rate, it would take us several more years before we would have even 10% down, let alone the usual 20%. we have two children, 2 and 6 weeks, so we have a few years before they would need more space to move, but it is possible we would have a 3rd child in that time too …

    would love your thoughts on our circumstances, rent or jump in the housing market now, while there’re all these incentives? any other questions you suggest we ask ourselves to help make a decision?

    thanks!

  8. @Steve: It sounds like you have already given this decision a thoughtful analysis. I applaud you for thinking critically before rushing out to make a purchase.

    My first piece of advice would be to ignore the government incentives and the low interest rates. Many a buyer has rushed out to buy for far less incentives and lived to regret the purchase.

    I would not personally buy a home without a solid down payment and an established, fully funded emergency fund. This probably means waiting to buy a home, missing out on the tax credit, and potentially paying a higher interest rate. But that’s OK, because you will be in better financial shape by then.

    If you do decide to buy, consider diverting some of the income you have allocated for various savings funds to a down payment fund, but only after your emergency fund is fully funded. You may have to sacrifice a vacation or cashflow Christmas and any small emergencies, but you’ll be building the down payment for your home.

    Finally, since you have small kids, ask yourselves if your current location is where you’d like to raise them. Are you in a good school district? If the answer is a resounding no, then you have your timetable established – look to buy before your oldest starts school.

  9. From my personal perspective, home ownership is ultimately cheaper than renting (unless you live in a rent controlled area).
    Once I decided to settle down, I found a home in an area that I liked. It was in my price range and in good enough shape that it didn’t need major repairs. In the ensuing 18 years I’ve refinished the hardwood floors, replaced the windows with dual pane, replaced the roof, updated the kitchen and bath, as well as other smaller upgrades. The biggest mistake I made was to pay for most of these with my credit card. Although at the time the highest interest rate was 9.9%.
    Currently, because I’ve never taken out any equity in my home, my payments for P&I, insurance and taxes is half of what I would pay to rent a comparable home.
    Provided I continue my current payment schedule, I will have my home fully paid off in 32 months.

  10. Of course I love this article….but I do have one caveat.

    When I bought my first home I was scared out of my mind. I never took on a commitment or debt like that and I was really hesitant.

    The numbers looked ok….not great…..but ok. My wife encouraged me to get out of my comfort zone a little. I did and I’m glad I did.

    So, certainly, make sure the numbers work but first time buyers should expect to still be out of their comfort zone a little. I think it’s natural. Just my experience…..

  11. @Steve: Parents often feel that they need to buy or rent a bigger place for their kids but I have to say – I grew up living in military housing with 3 kids in a 3 bedroom house and then five years in an even smaller 3 bedroom apartment. These were small places but as a kid I loved it. I think adults are the ones who really want more space – maybe to get away from the kids? But I never gave it a thought and have very fond memories of our little homes.

    My parents didn’t buy their first home until we kids were 13,15 and 17 and even then it wasn’t a big home but at least all of the kids got their own room, small as they were. So don’t feel pressured to get your kids a house, if you don’t make a big deal about it they won’t either.

  12. I am a renter in a city co-op building. I did not buy, those many years ago, when it was converted because I knew the condition of the building (I actually read the engineers’ reports), a pre-war one, with lots of basic problems that would, over the years, lead to huge increases in maintenance.

    I was not alone. Several neighbors, including two who worked on Wall Street and had plenty of money to easily afford the prices at the time, also did not buy.

    It’s never easy to think about how much I paid in rent and what that would have translated to in terms of ownership. (I would have owned the apartment a few times over.)

    But the increased maintenance (huge), the issues with the co-op boards, which are a nightmare, the ongoing problems with the building and the volatile marketplace (long before this recent economic crisis), combined with various changes in personal and professional circumstances over the years, well, even if I got a decent price had I bought and now sold, I still wouldn’t be ahead.

    Because whatever house or apt I traded it for, same thing.

    In some ways, I paid out more. But in many others, I did not.

    Owning for the sake of owning, but generally with the implied goal of “making money” off ownership, has always been greatly over-rated.

    You are no less a citizen and committed to an area (I’ve lived here for over 20 years in one neighborhood.) if you rent.

    And as too many have sadly learned, ownership can be costly and an albatross you may never get out from under.

    That said, I truly wished that in my 20s, I could have understood how much I might have liked to live in a place with space and a garden. Those options are not available financially now…although, if more people in our area get desperate, I suspect they will be renting out rooms in homes, too!

  13. Good to see that you gave a balanced presentation that includes the advantages of renting.

    A few other points in favor of renting:

    –Renters can be more liquid. Owners have money tied up in the down payment/equity. And as you mentioned in the post, more money is poured in for repairs and maintenance, which a renter doesn’t have to do.

    –The biggest benefit of owning is being mortgage free, which for most takes 30 years. That’s a huge chunk of your adult life. But see the next point…

    –Owning was the hands down better deal until the 1970s because up until that point most people bought a home for life. There may have been a starter home for the first few years, but the next one would be the lifer. In that position, you can pay off the mortgage. Owners today refinance and trade up too frequently to gain that advantage. Every time you do that, you lose time (by recasting the mortgage) and money (in transaction fees).

    –Renters have more time. Owners need to spend time fixing, maintaining and beautifying their property. There can be a lot of emotional benefit in that activity, but if you’re not really into it, it’s just lost time.

    One caveat here, renting is the better option in a poor housing market because there’s plenty of inventory for rent. In tight housing markets, buying may be the only real option, especially if you have a family. The times are real good for renters right now though.

  14. Another thing about owning is that neighborhoods change. In my opinion, an ideal neighborhood consists of lots of elderly people. Those neighborhoods are quiet, and unless the people are infirm, their lawn maintenance is always up to snuff. Unfortunately, once all those elderly people die, those houses often end up in the hands of slumlords who rent to god-knows-who and the neighborhood goes downhill fast. Easier to leave if you rent. I had an aunt who bought a house in a nice, quiet neighborhood, and then when she saw they were building government subsidized housing down the street, she sold her house and moved.

  15. We rented in the military and are now renting again after retirement – we sold our last house just before the market crashed – the downside, we had to reroof, remodel the kitchen and bathroom just to keep them reasonably current, and with interest and taxes paid over the years, we probably didn’t make anything even though we sold it for twice what we paid for it 12 years earlier. A worse scenario, several of our neighbors can’t sell now without quite a loss, even though they want to move to smaller homes or, in one case should be moving into a nursing home, but can’t because their money is tied up.

    When the economy tanked, we were able to find a condo that is almost as nice as the one we were in, actually with nicer neighbors, for half what we had been spending. Because we were renting we have been saving $1900 a month since last November with no loss in lifestyle. We certainly couldn’t have done that if we had owned a house – unless it had been foreclosed, as we are seeing with some friends.

  16. it’s apples and oranges.
    Rents rise, mortgage stays fixed.
    Prop tax, interest, is tax deductible, which neutralizes part of the extra expenses of ownership.
    Eventually values will again rise with inflation and population growth inevitable.
    Thus, in the long run, save the flexibility, ownership always trumps renting or leasing. This is true for automobiles and even more so for homes.

  17. No, Ownership is better. IF you are in the area to stay awhile, and IF you are handy at repairs.
    The biggest advantage is at the end, you own it, a sizable bit of wealth (unless you bought during a bubble).
    We are in our 60′s, and own 7 houses in 2 countries. Most are rented out, some we use for vacations, but we have a source of big money; all we have to do is sell one when we need to.

  18. A house is a lot of work or money. If you don’t have money or don’t like to do manual work, keep away. There is always something to do, always.

  19. Great post! I agree entirely.

    I think my husband and I got caught up in thinking that we NEEDED to buy a house. We do like where we live, but we could rent for a lot less (and we wouldn’t have HOA fees or property taxes). Plus, if we sold now, the best we could do is break even (because we didn’t have much of a down payment).

  20. Rent is paid forever.
    Mortgages eventually are paid off.

    When you are retired, do you still want to be paying rent? Or would you rather live mortgage and rent free? That’s the final question.

    Yep – there’s still taxes and insurance – but house insurance with contents is no more expensive than renter’s insurance – at least that’s what my costs were – equal.
    And taxes – mine are about $65/month. I can deal with that :)

  21. People habitually underestimate the cost of maintaining a home.

    Here in the UK the government allows you to deduct 10% PER YEAR against tax on returns from a rental investment on the grounds of wear-and-tear and refurbishments, etc.

    That should give you an idea of what it costs to keep your house in shape… I don’t think it comes to 10% a year, but 1% a year is far too low an estimate.

  22. Monevator (23)–A respected handy man in my area told me that homeowners need to budget $300-$500 per month, on top of their basic house payment, to cover repairs and maintenance. I think that’s about right. But he said most people don’t budget for this, and often let crucial maintenance go to “save” money.

    At the midpoint of $400/mo, or $4800/yr, that would be $48,000 over a ten year period, which sounds about right when you figure that over any given ten year period it’s highly likely that you’ll need to replace the roof, flooring, window treatments, major appliances and HVAC. You’ll probably also need to paint inside and out at least twice. All in addition to more routine maintenance.

    Another point too, is that none of these repairs and maintenance items will add value to your property, because a prospective buyer assumes and expects that the components of the house are up to date and up to standard. These are jobs that must be performed just to maintain value.

    For most people, that kind of cost virtually swallows up the tax deduction on mortgage interest and property taxes.

    It certainly another factor to consider in the buy vs. rent debate.

  23. - Yes, home owners need to consider maintenance and repairs. But those costs listed above seem to be for McMansions, (and HIRING it done) not a small little retirement home, and doing it yourself. (My personal experience – my homes and my rentals)

    As I put on a new 50 year roof (under $8,000) and new 40 year flooring ($2000 including subfloors) and all new (40 year or more) electrical ($9000) and all new plumbing (30 year or more) ($3800) when I bought and remodeled the house 4 yrs ago, and all new (20 year at least) appliances ($2200) which home renters have to provide for themselves anyway…. there should be NO major maintenance costs other than power washing and painting once every 10 years or so (less on the inside with a good washable paint) during my life time. (And as I painted the whole thing myself the cost was minimal the first time around – about $500 in paint) This upgrading should be equivilant to your buying a new home. Window “treatments” are minimal – take out the sewing machine and it’s done – I have less than $400 in all the window treatments in my house, including the vertical blinds over the sliding door. Amazing what you can find at garage sales :)

    What I’m saying is, if you have a frugal home, which this blog is about (frugal), and you do things right to start with (upfront), you should have minimal repair costs on your home while you live in it. Planning ahead, I did all those things upfront while remodeling/adding on to a tiny home, and planned NOT to have to do them again in my older age :)

    Having rented, owned several homes, and owned and rented out houses to others, for me, the only way to fly is to own my own home, mortgage free, and be able to exist on a bare bones budget of under $400/month, including taxes and insurance…. now that’s peace of mind I couldn’t get from renting :) Homeowning – in my case, it’s about survival on next to nothing!

  24. I’m very glad that you wrote this article given how widely read your site is. While every circumstance is different, then is certainly a strong case to be made for renting over buying in some situations. Especially in these difficult economic times (real estate market being no exception), the old notion of “the best thing you can do is a buy a house” doesn’t always apply anymore.

  25. This is a great article and discussion.

    For all those who advocating buying above all else: I think it would be interesting to do a survey of ages.

    From right after WWII to about the late 1970′s it would appear most homes were built with 1 income in mind. That meant smaller houses, etc.

    After that, as 2 income families became more normal, house sizes and prices really began to rise as houses bigger than 3 bedroom/1 bath became both more affordable and in demand.

    In other words, buying a house sometime between the 50′s and early 80′s was slightly “easier” than now. In addition, since then housing prices have risen steadily as the boomers and then generation Xer’s bought houses, culminating in the housing bubble of 2003-2007.

    The other important factor to realize is that in many places property taxes are heavily subsidized for older people. In my state, seniors are given heavy/additional rebates on based on in income. In other states the property tax caps have the same effect.

    So yes, if you are in your 60′s right now and bought several decades ago, it was a great idea. I’m not sure the future holds the same for us, though.

    As someone who is 35 and renting, I totally understand the concept of a paid off living space. However, given that my husband and I want to be mobile and don’t want to pay what we consider to be the still extremely inflated housing prices, we’re renting for a while. We live in a tight housing market and still cannot make the numbers work to buy.

  26. You didn’t mention the ability to deduct mortgage and real estate taxes. Sure, people with lower income and who live in low tax states may not be able to deduct full payment. But for those who live in high tax states, it’s a big deal. In NY, for example, just income taxes alone is often more than standard deduction. If you are in this situation $1000 in mortgage is a whole lot less than $1000 in rent.

    Having said that – timing is important. Sure it was stupid to buy in 2007 – one didn’t need to be a genius to see a bubble or foresee foreclosures. I advised a friend not to buy in 2006 because I thought the prices were getting ridiculous, and this was to a friend with money. I sold my rental in 2004, but this was a bit too early. A friend of mine sold her rental in 2007 almost at the top, but this lady has a talent with money. I admit, I didn’t know enough about economy and role of credit to foresee the crush – my mistake, but real estate bubble was obvious. One good rule is the relationship between rents/cost of ownership on equivalent properties. In a fairly valued market they are reasonably close. If the market is overvalued, renting is much cheaper. If the market is undervalued – it’s the opposite. You can also look at market direction by looking at supply and how long properties stay on the market.

    Also, not everyone needs a house. A co-op or a condo is a perfectly valid alternative too especially for singles and young couples, and they have a lot smaller repair and insurance costs. They have maintenance (co-ops) or common charges/taxes (condo), but these costs are more predictable.

  27. A Real-World Example
    For the purpose of comparing renting to owning in this article, I’ll be using real-world data gathered from my area (northeast of Seattle). Although most first-time buyers tend to move from renting an apartment to buying a larger, stand-alone house, as much as I can I will compare apples to apples.

    For rent, I located a 3-bed, 2.5-bath, 1,840 sqft house with an attached 2-car garage, on 0.2 acres. Monthly price: $1,495.
    For purchase I found a 3-bed, 2.5-bath, 1,850 sqft house with an attached 2-car garage, on 0.22 acres. Price: $424,950.
    The two homes are located within two miles of each other in similar neighborhoods, and neither is located on a busy road. We’ll assume that our hypothetical homebuyer is a married couple with $85,000 in the bank to make a 20% down payment. To calculate mortgage payments we will use a recent 30-year fixed interest rate of 6.25%.

    Let’s look at how the monthly costs break down (approximately) for our hypothetical potential first-time homebuyer:

    Renting Buying
    Rent/Mortgage: $1,495 $2,093
    Insurance: $20 $163
    Property Tax: – $407
    Tax Savings*: – ($327)
    Maintenance: – $354
    Total: $1,515 $2,690

    *: (less standard deduction)

    Right off the bat, you see that simply trading straight across from renting to owning results in a 78% more expensive monthly bill. That’s not exactly chump change. With even a slight upgrade from renting to buying (which most first-time buyers are prone to do), you can easily see how the total monthly costs would be more than double.

    “If you rent, you’re throwing away your money.”
    Common knowledge says that despite today’s large premium, buying a home is a “good investment”. Hey, at least you’re not “throwing away” your money, right? True, the renter in our scenario spends $1,515 every month that they will never see again. I wouldn’t exactly say it has been “thrown away” any more than money spent on any other good or service is “thrown away,” but granted, there is zero financial return on that money.

    However, when you take a look at the breakdown of the homebuyer’s monthly expenses, a large amount is money that will never return, either. Insurance, property tax (less tax savings), and maintenance, add up to $517 every month that is being “thrown away.” Even worse is the amount spent on mortgage interest. Consider how much of a mortgage payment is applied toward loan interest throughout the life of a 30-year fixed loan:

    Years % toward interest
    0-5 ~80%
    6-10 ~70%
    11-15 ~60%
    16-20 ~50%
    21-25 ~35%
    26-30 ~10%

    In the first five years, approximately 80% of the mortgage payment goes toward interest. That’s an additional $1,674, for a total of $2,191 being “thrown away” every single month by the homebuyer for the first five years. Ouch! In fact, not until the homebuyer has been paying down the mortgage for over 20 years will the amount they are “throwing away” be less than the renter.

    franklinunited

  28. franklinunited verifies exactly our experience – in a more stable less inflated market in Iowa.

    Wish we had just rented, we would have saved a bundle, and he didn’t add in all the things you buy to “upgrade” that you don’t really need, just want, to keep up with the Joneses.

  29. Guess it depends on where you live.

    Comparable 3 bed/2 bath large townhomes.
    Nice views from both.
    Similar locations, etc.

    Rent: $1500/month. Bay and mountain views.
    Buy: $160,000. Bay and mountain views.

    Comparable smaller homes – 3/2′s. In town.
    Rent: $1200
    Buy: $130,000.

    Both above are actual today prices in our area.

    Seems the BUY deals look better on each one to me.
    Like I said tho – depends on where you live.
    Might want to Move to rural America if you want to be able to buy :)

  30. Residential housing only keeps up with the rate of inflation – financially it is a hedge, not an investment.

    Property taxes increases are NOT capped in most U.S. jurisdictions.

    Just recently here we have had a homeowner who saw their personal residence reappraised from $200,000 to about $900,000 because commercial use property had crept close to their home.

    So much for living the rest of their life in the family home!

    Over the past 20 years, the large home where I grew up saw its property taxes nearly quadruple, while the value (sold early last year) only doubled.

  31. Interesting article. I absolutely agree with the point you make about having savings…it is Murphy’s law that something will break once you own the house!

  32. Yes, buying a home can be a money pit. It can also be a blessing, depending on the area.

    Personally, our house was bought with cash and I would not trade it for anything (even though our taxes are about the same as rent on a three bedroom in town)!

  33. It is better to buy a home than to pay rent. You could pay rent of $800 a month or buy the house for $1200 a month. After 20 years you will finish paying off your mortgage, but if you were renting then you would still have to continue paying rent for the rest of your life.

  34. My paid-cash-for home is not considered an investment – but Peace Of Mind :)
    I have a roof over my head til I die – for under $90/month right now in insurance and property taxes… Sure that can rise, but not more than 3%/year – so no big jumps. I did all the updating – no big maintenance will have to be done during my lifetime, excepting catastrophies.

    NEVER again do I pay RENT – as long as I stay in this house. Peace of mind is good! Having no mortgage/rent is a vital part of my retirement plan and the only way I could retire!

  35. The view from were I sit north of the Canada/US border is a bit different. No such thing as a tax credit for on your mortgage, which means for many folks paying it off asap is ideal. On the down side property taxes in my area seem high (don’t know where you live to get $65/month property takes but mine are $6000/yr for a 3000sq/ft on 3 rural acres. A couple of years ago our little rural township was absorbed into the nearby city so now we pay higher taxes, but still have volunteer fire department, no city water or gas, no sidewalks, etc etc. As newlyweds we bought a small town house in the suburbs. I was still in university and then an entry level job so we struggled even with a tiny mortgage. We scrimped and saved, made a few improvements and 6 years later sold for 50% more than we paid. With the profit we bought our lot and started construction and for 2 years camped out in my parents unfinished basement while we built the house. By doing much of the work ourselves we saved a ton and got exactly the house we wanted. Fast forward to 15 years later. The house which was worth $250k when we finished it is now worth $500k and the mortgage is down into the $180s. We’re rapidly knocking down the mortage by paying every two weeks(I can’t believe there are still people paying monthly when you can save 8? yrs by paying more frequently). We rounded the normal payments up (should be ~$750 every two weeks but we requested they take $800). Whenever we get a tax refund, bonus, or just accumulate a little extra we throw it at the mortgage. On our current plan we hope to be done with the mortgage in about 7 years. At that point for 1-2yrs we’ll use what was the mortgage money to do one last round of house improvements so nothing should need to be replaced during our retirement (roof, windows, deck, septic field, major appliances and furniture). We’ll buy a new(er) car, and sell whatever 2 we’re driving at that point as we’ll only need 1 in retirement.

    Renting was never really a consideration for us – can’t say we even did the math on it. When we met my husband was a few months into his first job out of college. When we married 18 months later we bought our first house 2 weeks after we got back from our honeymoon. He grew up in a small town and hated living in the city. I grew up in the suburbs and wanted the country life. There are some rural rentals, but not nearly the options available in town. On top of that I’m a bit of a decorating/design junkie and had definite ideas about the house. Living where I couldn’t renovate or even paint would never feel like home. I designed the house, had the plans drawn up properly for the building permit and we took it from there. We both come from “handy” DIY families so building a complete house was just taking all those projects to there next logical conclusion. My DH’s parents built their home with cash as they got it and have never had a mortgage. They still live there and are 80 now. My mom’s been in real estate for 35yrs and we moved virtually every year of my life growing up. They made a profit on everyone, and she’s still selling and moving and will be 70 in January. Her next move is in 3 weeks… So we come from opposite ends of the home ownership range: one house and never move vs. 19 homes before I married at 21. Renting was just never done in our family so it never really crossed my mind as an option. To this day the only renting done in either of our families has been by university students, newlyweds in the first year, and an elderly grandmother who rented an appartment in town when she wanted to free up her equity to travel, and the snow shovelling at her country place became too much.

    I guess I’ve been brainwashed a bit to look renting as a temporary arrangement for certain periods of your life, but not a long term situation. Funny how you accept one way of doing things as normal or right and don’t give any other way a fair assessment.

    The one piece of the story I hadn’t counted on is that while we always planned to be carried out of this house in pine boxes…I’ve now mentally moved on to where this house is looking more like a big pile of equity I’m not using for the things that are now important to me. My husband still wants to live here forever, and hopes I’m just going through a phase. I look at the $300k of equity and think we should soon downsize to something small and be mortgage free immediately. I think I’ve come to realize that designing, building and decorating the house was the fun part, and now that’s done and staying here forever at any expense isn’t so important to me. I’d rather free up the money to travel more or retire that much earlier. Our retirement is tied directly to when the mortgage is gone.

    For now we continue on the original plan – pay off the mortgage asap and stay here forever. Meanwhile I keep an eye on the real estate listings…

  36. Just had another thought after the post above. My mom who is about to make yet another move (to her ~30th purchased home) said something I find funny. When she was selling her house but hadn’t found the new one yet, I asked her if she was starting to think of downsizing to an apartment. Her current home is a condominium bungalow in a golfcourse community and I knew getting rid of the condo fee was one thing this move was suppose to address. Turns out she decided it was far more cost effective to hire her own lawn maintenance company and snow removal service than pay the $400/month condo fee. Yes they maintain the outside of the house but there was always a delay and multiple calls to get things done, and on an all brick home with vinyl clad windows, there really isn’t a lot of upkeep outside. The condo corp. also banned street parking and garage sales, both deemed unsightly to the neighbourhood. When she wanted to enlarge the standard patio area she could only choose from 3 preapproved larger configurations and she had to hire one of their preapproved contractors. After years of non-condo single homes she decided condo living wasn’t for her, she wants what she wants when she wants it. Given her newly discovered aversion to condos I suspected she wouldn’t be moving to a condo apartment, but perhaps a rental would do it? Her reply, “Oh, I’m still too young for a rental”. Translation, that’s only for the really elderly and I’m not quite 70. At this point in her life she moves from house to house mortgage free, just transfering her funds from the sale of one to the purchase of the next similarly priced home. So other than legal and moving fees, the moves are “free”.

    Rent is money wasted in her mind and growing up in that environment I guess that’s why renting never really crossed my mind. Before she moves in to the new place she’ll have a week of overlap before she has to be out of the old one. In that time she’s having the roof redone, the entire interior painted, the kitchen cabinets replaced, and installing new carpets, hardwood and custom wood blinds. Within a week it will look like “her” and look like she’s been there for years. Until next year when she’ll finds the next slightly more perfect place, around the corner or across the street (yes she’s done that) and she’ll be off again, pocketing another profit. I have to give her credit, she always buys well, does just enough of the right improvements and sells at the perfect time in the housing market. Given how well she’s done over the years (and how much fun she still has doing it) maybe purchasing is the only way to go for some people. I don’t think any amount of calculations comparing owning vs renting would convince her that renting makes sense. I belive she’ll only give up ownership when she needs to start using the cash for “rent” in a seniors/retirement home. So until her health dictates it, she’ll carry on as she always has.

  37. @Jenn – $65/month property taxes – NW Coastal rural Oregon. My property taxes are $760/yr on a median home in my rural town area. Mine is newly added on to, remodeled, new roof, electric, flooring, windows, plumbing, fixtures, etc… basically new.
    1035 sq ft with 2/1.5. New woodstove, Sliding glass doors onto a covered 8×30 patio, outbuilding, on a large corner city lot. City water and sewer and sidewalks. Large garden plot and lots of edible landscaping.

  38. ps – square footage is main floor. Also has a full length of house standup/walk thru attic with windows at ends with permanent real stairs to it.

  39. Owning is, in most cases far better than renting. Bought my first house in 2000 sold it 5 years later for a 50k dollar profit. Bought current house which appreciated about 30 per cent, dropped back 5 or 10, still worth 20 percent more than what I paid. I’ve made extra mortgage payments so equity is growing. Each month the mortgage shrinks and my net worth grows. When I retire I will own the house with no mortgage or rent. Maintenance is not that big of a deal . I do much of it myself. Appreciation has out paced these expenses by far.
    For me homeownership has been one of the smartest financial decisions I’ve ever made

    Just make sure you don’t buy more house than you can afford, buy at a good price, in a good neighborhood, and stay put.

  40. Of course there are variables, but franklinunited lays it all out if you are buying with a typical 30 year mortgage. The reality is that you won’t actually start really paying for most of the house itself for a long long time. If you bought for $275,000 and sold 5 years later for 350,000, people count that as a $75,000 profit, and it absolutely is not!!! You barely scratched the surface of that $275,000 and you spent money on repairs. Do the math, look at the actual cost of the house after the interest is added in, then see what kind of “profit” you’ve made. Better to rent unless you can pay cash for the majority of the house.

  41. My wife and I are both under 30, own both our vehicles and are running our own company, which we both work at. At the moment we are saving 50 percent of our combined income renting a small apartment and keeping our bills down. We have 20 percent down payment saved up, and a substantial emergency fund, I am interested in buying a house as a financial investment. With the aim of paying off a 30yr mortgage in 5 – 6yrs and then turn the house over for a profit. While at the same time saving on rent, has anyone had experience at this, or have any advice for us?

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