The Myth that Buying and Owning a home is better than Renting
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The housing market is a reflection of the employment market. Without employment, houses will not appreciate. And, if houses do not appreciate you will not benefit financially from owning your own home.
It's elementary really.
Not only that but property taxes will go up and deductions will go down. Why would property taxes go up in a declining market? Property taxes are not tied to the value of your property, they have more to do with the need of the state and political machinations than the value of your property and as we all know states are in dire need right now for revenue. For that reason alone you should avoid purchasing a home. In addition, as a home owner you are really stuck paying property taxes unless you sell your home to get out of them. You are putting yourself into a situation where you are held captive by the bureaucrats. No other tax can take advantage of you like the property tax. It doesn't matter if you have no income, it doesn't matter if you get sick, if you don't pay your property taxes you will lose your home.
Deductions will decline for the same reason that property taxes will go up, the government has lost a lot of money and tax revenues are at an all time low. Do you really think that they are going to allow you more deductions or even the same deductions when they are looking under every rock, crevice and leaf to find money?
Owning a home is expensive. When you own a home you are forced to pay for insurance, repairs, taxes and utilities that you would not have to pay for if you merely rented. These items add up fast and unless the house is appreciating at a steady incline you will actually lose money. Not only that but when you go to sell the house you will also have to pony up for the cost of a Realtor and in some states for transfer taxes that can be quite steep.
Moreover, owning a home makes moving very difficult. If you lose your job you have to sell the home first before moving and in this market that is not an easy thing to do (without taking a pretty big hit financially). Renters usually only need to give 30 days notice and they are done.
The whole idea of the American Dream, to own your own home, is really a ruse. No one really owns their own home because most people have mortgages that they seldom pay off and even if you can manage that you will always have property taxes. A tax that you have little control over.
The people who tell you that buying is better than renting usually benefit from people buying verses renting. They are Realtors, the mortgage industry and the elite. They directly benefit. It would be like asking a stock broker if the stock market will go up. What else would he or she say?
In conclusion, you should rent a home rather than buy if you actually want to save time, frustration and money.
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CommentsLoading...
Thanks Vladimir, did you watch the video, it's very informative.
You make good points. We own our home debt-free, so there is no tax-deduction, but there is definitely upkeep.
and property taxes.
Thanks for writing loriamoore
It's interesting that as a former realtor (I refuse to capitalize realtor), you've now become an advocate for renting. I'm trying to unload my house to a nearby Mormon church. Everything else aside they do have money. Anyway, here's another hub idea for you: Is there an American dream anymore; a dream that's real? I think not but I suppose it depends on where you're coming from.
Surprise! I disagree with you.
A simple point that you fail to mention is that as expenses go up, so does the rent. If you are renting a house, condo, apartment, or trailer, the owner WILL charge you enough to cover their ever-rising expenses. If the taxes go up, so does the rent. After 20 years of paying rent, the only thing you have to show for it is a bunch of receipts. In 20 years, you can own the property, or at least a huge bit of equity.
I was blessed enough to pay off my mortgage last year. My housing related expenses are upkeep and taxes. A yearly expense that is less than 2 months of rent.
True, I no longer have the mortgage interest deduction, but I wouldn't have that if I were paying rent either. My advice is to buy if you can afford it, and never take more than 20 years to pay it off. 15 is even better. Pay a little extra each month to reduce the overall interest payed by tens of thousands of dollars over the life of the mortgage. Any extra payed each month goes completely to the principal.
Hi Foriegnpress, well I think as you grow and learn hopefully you become more wise...yes it does depend on your location and I would not have said this 15 years ago because things were different.
50 year old white guy...the problem with your comment is as expenses go up, the price of the house goes up, the interest on the mortgage goes up. I am not saying that in the past it wasn't better to buy, but now it isn't wise. Nothing will go up now. Instead, the banks are artificially keeping the prices higher than what the market will bear by just holding onto inventory.
Fair enough on the artificially high prices Brie. That is nothing new. Depending on where you choose to live, prices can be amazingly inflated. NYC is a prime example of inflated prices. That being said, the physical structure is just a small piece of the puzzle. The larger piece is a desirable location. NYC is a desirable place to live for some. For me, it's a great place to visit, but not to make a home. Awesome pizza btw!
If you lock in a rate, the interest does not go up. The first home I bought had a mortgage rate of 11%. Very expensive. My second home was a more reasonable 6.5%. Variable rates on mortgages are a gamble that I am not willing to make. If that was my only option, then renting would be my choice.
Personally, I think the housing market will never go back to where it was before 2008.
My brother recently bought a house here in England for just short of £200,000 which I just cannot see helping him in any way in the current economic climate.
I prefer to rent, at least then I go traveling on a regular basis and am not tied down to anything or to any bureaucrat who decides to make my life awkward on a whim.
Who is the fool here?
The one who buys a house that is some 10x his annual salary in an economically depressed area before you factor in a recession or the one who merely pays £100 a week to rent, owns no deed and yet can go anywhere he chooses on a moments notice?
Buying a house to me just seems foolish now, in times gone by it was a wise thing to do, work hard and get a house that would see you right if you ever had hardship. Nowadays the banks and governments gamble with our money and paint tax-bands on a map while blindfolded and they will take it at a moments notice when you fall behind on your payments due to their Machiavellian meddling.
Rental is the way to go, for the mortgage of £200,000 I can rent for just short of 40 years which is about the same time it will take to pay back the loan and extortionate interest if you ever manage to get that far while paying double my monthly bill.
Much better to take that money and invest it in something real, like education.
Sparhawke, you are very wise!
Buying an apartment is better. Less upkeep, less price, less, less, less.
There are of course ups and downs to both lifestyles, and the devil is in the details of one's preferences, but there's something to be said for one's money going towards an investment which can be sold rather than just burning it for rent.
One thing's definitely for sure: don't buy a house, OR an apartment, unless you really absolutely know what you are getting into. Do your homework on all the expenses and the changing taxes and maintenance fees, and expect the worst.
I guess there are still plenty of foreclosures to capitalize on though, right? ;) lol
Buying anything right now is akin to catching a falling knife. Also, apartments have HOA fees that can be outrageous.
There is no one size fits all financial advice. Owning v renting can be a simple lifestyle decision.
Or it can be a forced savings program for those that cannot save otherwise. (Although it seems those are the ones that milk the equity as soon as it builds up.)
It can be a pretty good hedge against inflation if you're planning to stay put.
In retirement it can let you remain in a place you might otherwise not afford, especially w/o a mortgage.
Not ever buying has been one of my better financial decisions just as buying has been one of the best for friends of mine.
Shelter is the number two need for human survival, behind air and ahead of water so it can be a very emotional topic.
I'm starting to love your hubs, Brie. You are very direct, and I think you get the big picture of the financial "matrix" we are unwittingly pluged into! I agree 100% with your point on property taxes. As long as the government can tax your property, or take it away if you don'y pay, there is no real ownership. Frustrating. Anyway, thanks for a good read.
I'm so glad, it makes me very happy to be useful.
This is an idiotic article. The owners who rent these places out will be jacking up the rent accordingly as their taxes go up. There is no way that you wil get ahead at all. The only way i would rent would be if you are waiting for prices to fall, which they will.
The owners will not be able to get their prices.
Good Hub, Brie - as Sparhawke mentioned, the UK is just as crazy and has stupidly inflated house prices. That is one of the major reasons we moved to this part of Greece (the sun and food may have helped, too!), because we managed to find a house that we could buy outright, without signing our souls over to the mortgage companies. Property taxes and utility bills are also very low here, away from the coast and big cities.
Having no rent or mortgage payments is a great comfort when you rely on the unpredictability of freelance writing for a living!
How is it there, we are hearing about strikes and riots. I'm glad you liked it, I think all the negative comments are from developers...lol!
Thanks for asking!
All very quiet at the moment - the media is giving the impression that the entire country is rioting and striking, when it is not true. 75% of Greeks are fed up of working 12 hour days to provide fat salaries, pensions, and early retirement for the other 25%, so the strikes have little support. It is mainly communists, anarchists and civil servants on strike - the rest of us have to make a living!
The economic difficulties have not filtered downwards yet, so life goes on as normal. It may well be a different story in a few months :(
Well, we are right behind you. I don't know if you noticed but the stock market went down 350 points yesterday and it's poised to go down more today..it's been sinking for weeks.
hehe - Greeks certainly took their eye of the ball and let corrupt politicians give out cushy jobs for votes, so take most of the blame for their situation. However, too many people think that it is happening because 'Greeks are Lazy' and that it will never happen to them. IMO, Greece is the canary in the mineshaft and we should all take heed.
As for the markets...I long ago ceased to care. If all stockbrokers and merchant bankers contracted a rare and fatal virus tomorrow, would anybody be concerned? :D When financial markets can destroy sovereign nations, something is wrong with the world.
I am not involved in the markets either, but they too are the canary in the mineshaft...so I pay attention. There are so few honest politicians, even if they do get in they are marginalized.
Hear, hear. I long ago removed all of the -isms from my vocabulary - they just keep us all at each other's throats when we should be wondering why we let these people get away with it.
How are you keeping, anyway? You are one of the Hubbers that I followed closely, but I have so little time for reading, nowadays. Did you manage to find a decent job in New York, or is that old news? :)
I have managed to find a position where I can live for free, stay under the radar and watch the revolution :)
I think, for now, it's the best thing. Who knows what tomorrow will bring.
Really glad to hear that - sounds like a good plan.
We have enough room to grow vegetables, if needed :D
I really wish I had a garden, who knows what they put in the food!
Brie I have to disagree with this hub. 50 Year Old White Guy is spot on with his reply. Why pay rent all your life and have nothing to show for it when you retire... you would just keep paying rent until the day you pass away. Getting on the property ladder is a major achievemnt and should always be started at the lower end of the market (unless you have $$$$$$). Property on average doubles in value every 10 - 12 years including down turns and booms. The key is never to live beyond your means and only upgrade when your income allows. When you retire, you down grade and you end up with a decent 'pension' you have earned yourself.
If you took the same amount of money and invested it in Gold you would be way ahead. And today that makes even more sense since I can see no reason whatsoever that property values will rise.
Been there, done that; now I rent. Couldn't agree with you more.
Thanks for commenting Bryan
Thanks, Brie, for a thought-provoking topic.
Buy or Rent -- it's really a lifestyle, capability/capacity, discipline and value choice. If you are not particularly eager where you will lay your head to sleep afterwards, then rent is it. But if you want to make some sacrifices now in order for you and yr children to have a decent place to dwell in the future, then buy is it. Whichever way, there is no guarantee, as everything in life. We hope that by renting we escape steep property taxes and headaches due to maintenance expenses, but who knows if in the future we can find the dwelling that we need when and where we need them? In the same vein, we hope that this very problem will not be our concern in the future if we buy a house, but who can assure this? What happened in the markets in 2008 so clearly shows us that this is not fool-proof as well. In the end, it is not really about investing in material and physical things that matter.
Sorry Brie, must disagree with most of the other comments. I think your position is simplistic at best.
There are the financial considerations and the nonfinancial intangibles which differ for each person. I personally have more of a renter sensibility, I prefer not to have the responsibility.
Financially however, at what price is it better to buy than rent. If owning is only 15 times the cost of renting (for example $1000 a month for rent vs. $180000 purchase price it probably makes a lot of sense to take the chance and purchase. It will cost you about the same per month and it's highly unlikely that taxes would go up faster than rent. So your argument isn't really valid, it depends on the fundementals of the deal, your tolerance for risk and your desire or lack thereof to own.
Did you watch the videos? I disagree, when you consider the down payment, the upkeep, the insurance the interest and the market (which I don't think will ever be as high as it was) you are much better off renting in almost every circumstance.
Brie, you make a great point about the banks keeping prices artificially high by hoarding assets. I don't think too many Americans understand there is a growing inventory of "shadow" foreclosures.
Interesting videos too. I enjoyed watching them both. I would like to share some of my thoughts about them. Who produced them? I think they should be given some credit.
When were these videos produced? I'm asking because the change in the rental/ownership market has already begun to shift here in Albuquerque with rents increasing and home values decreasing. I'm not going to say we have reached any kind of equilibrium yet, however, but we may be approaching depending upon unemployment (mostly) at this time.
Anyone who ever said "housing values only ever go up" was not being truthful or was just uneducated. There are many examples of bad markets over the last 30 years where this was untrue. Markets go down and markets go up, the only equalizer on any investment is time (assuming that US population growth increases).
Actually, there is more of a relation between home values and population growth than there is between home values and rent cost, or even home values and employment, but all factors have to be considered.
One thing that was not addressed on the video was the leveraging power that a home buyer's down payment money has, at least potentially. 2 or 3% appreciation on 1M dollars is a lot of money after all and would blow his scenarios to outer space when, not if, they happen again! That seemingly meager 2-3% appreciation is way better than 4% on whatever money he was saving in his scenarios (again, potentially).
Again, I enjoyed watching the well thought out and executed videos. Oh, and I should say thought-provoking too.
Of course, I'm a Realtor, so I'm wearing my rose colored glasses!
BTW, where can I get a CD paying 4% interest?
Sorry have no idea about the CD paying 4% interest...usually the people who say that real estate will always go up are...realtors. People don't realize that they have a vested interest. As for who did the vids...I got them from You Tube, and I believe I googled the topic and got one that way. So, sorry I don't know who the original producers are but if you do a little sleuthing you might find out. I had seen the videos a long time ago but wrote the hub in response to a cousin who bought a house (even though I told him not to), my sister also bought a house in the same area (I told her not to also) and she has already lost over 20k in equity...some people just don't listen!
I think making a blanket statement that renting is better than owning is irresponsible. You have to look at each individual case. I was paying over 1550.00 a month for a 2 bedroom 1 bath apartment, and rent was going up each and every year by about 50 to 100 a month. now I'm paying less than 1100.00 for a 4 bedroom 3 bath large back yard(none at the apt), 2 car garage (apt came with a 1 car garage)home. At the apartment I had to pay all utilities, same as with the house, so that's a wash. I do have to pay taxes on the house, approx 1500-2k year. But I do get the tax write off for interest on the loan(didn't get that with the apt) I didn't have to buy insurance but I did just in case(I also bought renters insurance at the apt)and I got the 8k tax credit for being a new home buyer. Making extra payment fast as I can. What's the down fall? Maintenance, taxes? I figure that the extra 50-100 a month increase in rent for the apt per year will cover that.
As far as your comment about the prices not getting back up to the levels back in 2008. I disagree again, it will take a while but all things financial are cyclic in nature, and in 20 to 30 years we'll see this same scenario play out again.
Based on what kinds of jobs..boy I wish I could save this because I am positive that wont happen.
?? jobs?? what wont happen?
In order for housing prices to go back up, new jobs have to be created...I was asking you what kind of jobs you think will be created in order to provide for the scenario you spoke about.
new jobs? not really sure what you're asking. in the immediate future, to get us out of the present economic slump I would probably guess jobs in the field of medicine, green tech like solar, wind, perhaps even green home building, nano tech research.
As far as the what will bring about the next recession /depression it will probably involve the banks and investments of some kind (homes, stock, bonds futures, options etc)and greed.
There are NO JOBS, housing prices cannot go up if there are no jobs to pay for them.
Why can't you trust Obama to create even more wasteful government jobs and print trillions upon trillions of more dollars to pay for implementing his agenda? Thanks to Obama, we finally know what a "Soviet style economy" is!
Cheer up, it will get worse!
The artificial-control by a few vain-and-arrogant men who elected THEMSELVES as our supposèd representatives must be broken and every market must collapse and fall before we can make any true progress with advancing the morals and ethics of civilisation at all.
Better to go out into the woods and build your own log-cabin on your own GOD-given plot of land, not giving in to any taxation-demands, and ignoring all threats by criminals who foolishly think that their badge or their uniform or mandate or book or legislation suddenly changes their crimes into non-crimes.
I never gave the wolves in sheep`s clothing (i.e.: politicians, bankers, legislators, etc) any permission to turn me into their peasant-slave, thus I ignore all their extortionist-demands that threaten to prevent me from being able to even carry out the basic human-need of being able to go to sleep anywhere, for I see that such actions are ungodly and barbaric. May as well go back to the days of having us stoned to death if we do not burn the unholy books of legislation NOW.
Short-version: I would neither bother to buy nor rent...best to find a spot out in the woods or wilderness and simply live in your own tent...
Aeius Cercle, I like what you have written, you have my passion.
This is a little silly. All those things you talk about paying when you buy a home are built into your rent when you rent a home or apartment (property taxes, building renovation and repairs, and the whole 9 yards). It IS better to buy.
Nice hub brie
Thanks Hollander :_)
This is a two sided coin. The old addage always holds true. Buy low and sell high.
When the economy was healthy you could buy high and eventually gain equity in a home. Now ! this would take too long.
Ya might ? be better off now to rent a home and buy Gold? As long as ya sell the Gold before the prices drop back down, then buy a house.
Ten years ago I bought a house out in the country,that I could afford to pay cash for. It was an unfinished dump. No sidding or shingles; wrapped in tarpaper. Had to finish the electrical, plumbing, sheetroch etc. etc. etc.
All that it was was shelter.
I realize that everyone can not jump in as deeply as I did into the do-it-yourself thing. But people should start out with what ya can afford. And learn how to do it yourself.
When you buy a new home, the cost of the land and materials represent approx. 30% of total cost.
$60,000 of a $2000,000 purchase. We would be paying interest on $140,000 for other peoples labor. Over a 30 year payment plan that $200,000 turns into approx 500,000. This is $440,000 for labor that you might have been able to learn how to do your self. And for having it NOW instead of a little bit at a time.
And this doesn't include the property taxes.
We live in a gotta have it now society.
Having it all "Now" is expensive.
Great Grandma lived in a little cabin and Grandpa added onto it as their needs grew.
Too bad that society makes this so hard to do today!
Hard!...the government has made it impossible especially with property taxes. Property taxes make it so that you never really own your land because if you don't pay them the government can take it away.
The government with property taxes is tough. But it isn't just property taxes.
twenty years ago I figured it all up. Just above the poverty level; Income tax, gasoline tax, property tax, sales tax, Registration on vehichles were getting 60 cents on the dollar that I was making. And Texas doesn't have state income tax.
I don't know what it is now, but then, approx 45% of the workforce were government employees. Millitary, school teachers, trash collectors, etc. etc. Good thing they also payed taxes.
200 years ago Government was a rideing in the wagon as part of the cargo. Now Government can be seen as the cargo and the horse and wagon.
Unfortunately; Society as we know it would collapse without it.
Well I have a different take: Society IS collapsing BECAUSE of it!
Well I have a different take: Society IS collapsing BECAUSE of it! ...
That too. I agree But I think that it is too late to back up out of it. Government has grown too large.
I suppose...sigh.
A good read, buying a house isn't always the best thing to do
I think and I'm not sure about this...but the only time I think it's prudent to buy is when you can make money from the land...like selling Christmas Trees or something like that.
Thanks for commenting Csjun89
Even though the housing bubble is over - the fall isn't since there is still hope of such unrealistic prices ever coming back, which they won't. If you are one of those wanting to buy a house. Give it another year at least. Prices are only going to continue falling for at least another year.
Oh I think they are going to fall for longer than a year...I think things are going down and may never go back to where they were.
Thanks for the information. This is very helpful.
sound interesting.People tend to buy home to save but it's contradict your opinion.I agreed with you that having a home is difficult to manage ,you have to pay taxes and utility billing.But then at the end it depend on person to person because we have different need and want.There's are people who want to invest and take the risk and others can't.
Rent goes up, taxes go up, but you can lock in an interest rate, pay for half your life or less then just pay taxes, utilities and maintenance. My place cost me less than $300 a month in taxes. I have low maintenance and low utility costs. What are you going to do when you retire and rent keeps going up? Depend on the government or relatives? A house is great in the long term, not so good if you're not stable and able to stay in one place - you could even upgrade a few times and still save in the long term.
There are other alternatives. I plan on either living communally or buying a piece of land and building a cob house on it therefore having no mortgage payment and a very small property tax payment. The other alternative is to see if someone will let you live on their land for free in exchange for eventually having a cob structure and to provide food for the owners through produce produced on the land.
Vladimir Uhri Level 5 Commenter 2 years ago
Thanks Brie, it must bookmark. Excellent!