Friday, July 22, 2011

Should One Buy or Rent

Another post on the subject, because of another weird article. The post is this one which actually does a good job of countering out some of the issues in the cited article, which is another "renting-is-the-best-financial-option" article. The biggest point the post made was the the savings of renters are very likely to end up spent rather than invested, which is a very legitimate point, though it doesn't counter the math. There are some quick comments that do counter the math, however, that I think need expounding.

First: long term buyers, which--for all the noise about flippers and trading up and moving--are traditional buyers and are still (probably) the most common buyers--have much different math to look at than those who move every 8 years. The shorter the term someone looks at the more likely that buying is a bad idea, this is true even in cases/places where the monthly mortgage + interest + taxes payment is less than or equal to the rent thanks to closing costs.

Second: it is virtually impossible to get accurate equivalent rent information in an aggregate manner. Controlling for number of bed/bathrooms or square footage or style is helpful, but rarely a really good substitute. The best is to compare same house or side by side...say rental vs purchased condos in the same building/development. To the extent that such information is available, you can get a really good comparison, but that information is so limited that it can't be effectively used for broad comparisons. I know what my house purchase price was, but I only have a vague idea what it would cost to rent it. I can try and figure an equivalent rent from other places, but there is no way to effectively get at the equivalence. Specific amenities, location, and style/preference all factor in. On top of that, many people place extra value on having freedom to make changes/improvements which is rarely a possibility in a rental.

If this sounds like my trying to rationalize my purchase of a house, it is, but that is because these are rational points that were part of my purchase of a house. If 10 years down the road I sell and move for some reason, and the "investment" I made turns out to have not paid off as well as had I rented for 30% less per month today, then that'll be that. But the "investment" plan of purchasing my house was to someday own it outright and have a house that I could live in rent free. I hope that if it ever does come to pass that I need to move that I will be able to keep the house and rent it out to others in the meantime so that it will still be there as a place to retire to.

While there are certainly things that are beyond the control of an individual buyer, whether investing in a house pays off compared to renting has a lot more to do with the intents and actions of the individual buyers than it does the market as a whole.

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