Renting vs. Buying

Monday, September 29th, 2008

Anita and I rent. We know that in the long run, we’ll be financially better off than if we bought. Aside from the blip on the real estate radar that’s happened over the last few years pushing real estate prices through the roof, that has come to an end and will not happen again for a long time for a zillion reasons. This we know to be true, but sometimes have a hard time convincing some people who are (like most) convinced that renting is a waste and the only way to plan for the future is to buy.

This article in Yahoo Real Estate explains the whole thing very well, here’s a great excerpt:

Rent is the cost of owning shares with money you would otherwise spend on a house. Houses have ownership costs, too: taxes, insurance and maintenance. Rent costs about 5% of house prices each year if we apply the price/rent ratio of 19. House incidentals often cost around 2%. If you have $300,000 and a choice between spending it on a house or shares, you’ll pay $6,000 a year in incidentals if you buy the house or about $15,000 a year ($1,250 a month) in rent if you buy the shares. But the shares will return $21,000 a year after inflation while the house will return zero. (My numbers work out even better than these. I pay a smidgen less than $1,250 a month for rent, while house prices in my neighborhood are far higher than $300,000.)

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