Comments on: Renting is Not Wasted Money

By: Jessie

Jessie — Tue, 24 Mar 2009 18:55:05 +0000

Al brought up a good point. The tax deduction is a huge benefit, especially for singles with no children. The amount of income tax you pay the gov’t that is offset by the tax deduction covers property taxes for the year. Meanwhile you gain equity (well, certainly not right away) in the long run and equity on your home is your wealth.

By: Al

Al — Fri, 20 Mar 2009 13:21:38 +0000

Sara
I have to agree with BT that it is out of range for most people to save over $150,000 just from their household income. I am still a renter and looking to buy this year with a $20,000 down payment plus the 8,000 stimulus, but in my market that is not even 10%. Still – You are missing one big benefit of purchasing a house in your equation – tax deductions on interest payments. I strongly encourage you to “re-do” your taxes and pretend that you have bought a house. Put in the expected purchase price and estimated interest for today’s rates and watch the deductions pile up. Of course these interest deductions decrease as you start to pay more principal than interest, but that was definitely the eye-opening lesson to push me into the market. Either this portion of my salary is going to go to the bank as interest payments on my home, or it is going to go to the government as income tax. My choice.

By: BT

BT — Fri, 20 Mar 2009 13:09:16 +0000

Sara- What you are doing is great, and it sounds like it will be a great plan for you and your husband. The only problem is most people can’t save $150,000 for a down payment on their first house. I also think that most people don’t look to buy their dream house as their first house. Early on most of your mortgage payment does goes to interest, but not all of it. Also, if you don’t have a stable job and you can see yourself moving around early in career, of course buying a house isn’t a good option.

By: Sara

Sara — Thu, 19 Mar 2009 20:21:33 +0000

I think renting is definitely smart too. Although it is my & my husbands dream to have a nice house, if we bought a $250,000 house right now with $10,000 down and a 30-year mortgage, we’d be spending a TON on interest – almost as much as the entire value of our house, and we wouldn’t own it until we were 55!

Instead, we are living in a NICE apartment for only $800/month. We are going to pay off our student loans and cars, thereby drastically increasing our disposable income (not even factoring in raises and bonusues), and save our money for a few years. We figure in just four years we’ll have over a $150,000 down payment and then we will be able to easily handle a 10 or 15 year mortgage (depending on the house we get) and we’ll own it at age 40. Renting just those few extra years will save us over $200,000 in the long run (Even WITH netting out the cost of rent!). I dont understand why more people dont do that. Interest is just handing money over the bank! I think so many people only look at the total cost of the house and the monthly payment, not an amortization schedule. And it is eye opening.

Also, the added benefit for my husband and I is that it can give us the opportunity to move and be flexible with our jobs, because our careers are important to us right now. But, we can still be settled with a nice home by the time we have babies! Its a little hard for me to see my friends and their houses and their remodeling projects, but they are all leveraged up to their eyeballs. I think what we are doing is worth it. A little sacrifice can go a long way.

By: Al

Al — Tue, 17 Mar 2009 15:52:20 +0000

I am sick of the assertion that renting gives you unprecedented freedom. Most rentals require a lease, usually no less than 12 months. If you have a job or life change in the middle of that lease, you are still stuck with the balance to pay or the onus of finding a replacement tenant, and you risk losing your security deposit over a capricious appraisal by the landlord on inspection. If you own a house, you can sell it or rent it to someone else at any time something unexpected comes up. That is the kind of freedom I am looking for.

By: Matt

Matt — Sun, 15 Mar 2009 20:15:55 +0000

As a home owner, I have to disagree. You are right that a home really isn’t an investment and that it does require maintenance costs that renting doesn’t have. That is why a live in small place that is easy to take care of. But the money you pay on a mortgage, unlike rent, doesn’t just go away, except the interest but that, unlike rent, is tax deductible. Every bit you put into the home should ultimately come back when you sell. Sure the market fluctuates, but there is strong potential to get your money back and more when the market is right. Bottom line my monthly upfront cost of homeownership (including utilities, insurance, and a little socked away for emergencies) is about $1100. This enables me to live by myself. The after tax cost is about $925. If someone rented my place they would pay about $1300 per month and they would get any back in the form of equity, tax deductions, future sales revenue, etc.

But as for investments, stocks are the way to go (over the long-haul), not real estate. I am unusual in that less than 50% of my wealth is real estate equity.

By: Nick

Nick — Fri, 13 Mar 2009 02:02:42 +0000

I personally disagree. Obviously depending on your situation, renting might be better, but ultimately home ownership is better in the long run. I pay $770/month for rent right now. If I owned a home, that money would be going toward building equity instead of going into my landlord’s pocket. Five years of renting vs. five years of owning a home will leave the home owner in a much better financial position.

Granted, I’ve never owned a home before so I might be wrong, but I’m saving every cent I earn so I can buy a house next year. Even if I am wrong though, that wouldn’t deter me from buying a house. The idea of having a house to call my own appeals to me very much.

By: Shaun

Shaun — Fri, 13 Mar 2009 01:32:49 +0000

Gosh, I actually have an article on this very topic on my schedule to write. I’ll throw a link over here when I do right it.

I obviously couldn’t agree more. To add to the benefits of renting: it lets you live with a lot more “travel freedom”. I plan on spending some time in Europe in the next few years, which means buying a home now would just shackle me down.

I don’t plan on buying a home until I’m ready to have a big clunky castle to call home.

This obviously isn’t to dis ownership — that’s great in many, many situations. But it’s also bad in other situations. It just depends, like most financial decisions, on what your context is and your goals are.

Again, great post.

By: Trevor @ Financial Nut

Trevor @ Financial Nut — Thu, 12 Mar 2009 20:17:47 +0000

I love it. I’m a renter as well. Could I buy a home? Yeah- probably. But I’m not in a great position to do it, so I continue to put my money away so I’ll have a better down payment on it. I don’t want PMI.

AND I am definitely not throwing my money away.

Great post.

By: KW

KW — Thu, 12 Mar 2009 15:50:51 +0000

I guess renting might be for you if you don’t mind living with the broken sink and landlord who won’t call back for weeks on end. I don’t quite see how this is a plus to renting…I like the freedom of being able to replace the sink when I see fit or paint the walls whatever color I want or put a nail in the wall to hang a photo.