Rent or Buy?

Posted on 01. Sep, 2010 by in General, Opinion, Saving Money & Finances

This is an age old question but it is hard right now as there are so many arguments for both rent or buy!

I’m not going to seriously run the numbers in this post. It’s more opinion (I may write a more detailed post soon) and looking at some of things to consider when renting or buying. Personally I am more predisposed to renting and I’ll talk about that in this post.

Buying your own home I personally think is not a financially good move unless you are lucky to buy extremely low and sell high. Of course in the current climate that is possible but generally over times homes tend to rise at about the rate of inflation but unlike having a savings account there are many many costs associated with home ownership that could potentially wipe all profit.

In my experience you end up paying about twice the value of your home once the mortgage is paid off, due to interest. This can be cut down by laying down a bigger deposit or making over payments but even in that case a $150k home could cost $250k over the life of the mortgage. Next up you have property tax, buildings insurance, general land upkeep charges and many other little things. I don’t think it’s unfair to say that a home worth $150k would cost $300k (with charges only associated with owning a home) over a 25 year period. So when it comes to time to sell the home needs to be worth at least $250k to draw even. Of course this is just a rough example.

Homeownership can bring peace of mind and make you comfortable. You can do almost what you like with the place and fully relax knowing that you are buying something that will benefit you and your family.

Renting is thought by many to be throwing money down the drain. But think about it. You spend $250k in renting ($approx $830 per month) over a 25 year period and you have $50k in savings. In this situation you could be better off than owning the home.

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I personally prefer to rent because a lot is taken care for you. If the boiler breaks it’s not a $3k job, it’s a call to the landlord. If your rood falls in during a storm it’s no arguing with the insurance companies. Also if you want to move you just give your notice and off you go. Simplicity!

Now buying a house can be hugely profitable if you are good at spotting a deal and doing work yourself or finding a way to getting it done on the cheap. It’s also best I think if you have 0 mortgage. Get the loan out of the equation and buy cash.

What do you think Rent or Buy? Are my numbers all wrong or too simple?

MSN also has an excellent story about how renting is coming back into fashion. It’s worth a read.

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9 Responses to “Rent or Buy?”

  1. Mike - Saving Money Today

    01. Sep, 2010

    All things being equal, I prefer to own. I like being able to do whatever I want to my house and not answering to a landlord. And despite the current housing market I still think it is good to have a house as an asset (though you make a great point about mortgage interest inflating the true cost of the house).

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    • Forest

      02. Sep, 2010

      Hey Mike, Personally if you own a home as an asset I think the money is better placed elsewhere where there are less associated costs but that’s just opinion. Owning a home should be more for you personally I think :) .

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      • Mike - Saving Money Today

        02. Sep, 2010

        Oh I do agree with you that your home should be considered a place to live and not an investment. But as long as you are paying every month, you might as well build some equity!

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        • Forest

          04. Sep, 2010

          Hey Mike, for me I did not enjoy owning. However most of my friends love being property owners and it works for them… And hopefully they will come out of it at least feeling like they made money even if they did not over the long term.

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  2. Ruth - Web Career Girl

    01. Sep, 2010

    I agree with you on the benefits of renting. But what about the drawbacks? I moved on Saturday and had no hot water til Monday because the letting agent didn’t realise there was a gas lever to turn on (neither did I but I don’t blame myself for that!) There are many problems and one thing I notice in practically all rental properties I look at is that they’re extremely inefficient, bad heating systems and even worse windows/ insulation etc.

    I am looking to get the best price I can get so I understand properties won’t be perfect, but in many cases you live with problems/ conditions that the landlord doesn’t want to pay for but you know would never put up with themselves if they lived there.

    Practically every home I have rented has left me cynical about renting in some way. There would be huge costs if I were responsible for the maintenance, but at least then I’d get in some decent windows, keep the place clean, fix leaky taps quickly and so on. But just can’t afford all that right now ;)

    I am just desperate to get my own place now lol! Sorry for ranting on ;)

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  3. Ruth - Web Career Girl

    01. Sep, 2010

    Oh I forgot to add possibly my main point. Yes buying may mean a lot of extra hidden cost over the lifetime of the mortgage, but you’ve gotta see it not just as an investment but actually a place where you live and what you make a home. That is priceless, and well worth some extra money I think.

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    • Forest

      02. Sep, 2010

      Hey Ruth, I did not enjoy home ownership. I disliked the pressure of needing to make sure everything was maintained, dealing with he insurance company when a storm collapsed my roof (I had to pay out of pocket because apparently god did it!). Luckily I sold and came out almost even but I won’t be buying again until I have 100% cash and an abundance of money for any issues that may arise.

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  4. FinEngr

    02. Sep, 2010

    While I believe in homeownership overall, it doesn’t make sense for young, transient individuals (or even couples).

    The shift in home ownership by younger people, and their reasons for it, can get pretty goofy.

    The “throwing money down the drain” statement always infuriates me. You need a place to live no matter what, so it’s a fixed expense – call it a sunk cost of living.

    When people say that, I like countering by adding, “Yeah, I’ve decided to stop eating – I just $hit it out anyway”. Now that’s literally money down the drain ;)

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    • Forest

      04. Sep, 2010

      Ha ha, Thanks, always a voice of wisdom!

      I think the ultimate choice should not be one of investments or money but rather do you want a home of your own and the hardships that come with it or a free moving existence with renting and money / investments stashed elsewhere

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