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The only problem I found with this article is that is compares a rental worth $2,500 vs a mortgage worth $2,500. Instead it should compare the rent vs mortgage on two identical properties. I suspect she did this intentionally (given the massive amount of knowledge she had on the subject) to make the article fit her conclusion of a balanced view on renting vs owning.
Truth is, if you compare an identical property in terms of owning vs renting; renting will almost always be more expensive and is a losing proposition right from the start. Hence owning is almost always better then renting if you are talking about two similar properties.
Here is a simplified version of when one is better then the other. This is assuming that the person following the strategy has the discipline to stick to it completely. I'm not going to consider "human difference factors" like some posters because they are irrelevant. If you go that route then you can argue anything as "realistic" based on peoples different personalities/strengths/weaknesses:
Owning is better if:
1. You intend to live long term in the house.
2. You would have rented a place of similar size if you didn't buy.
3. You plan to pay off your mortgage and invest the savings into other investments.
Renting is better if:
1. Your willing to live in a considerably cheaper place then the owner of the above place.
2. Your willing to invest the difference religiously.
Assuming that the owner and renter from above make exactly the same income at all stages of life; the renter will come out ahead in terms of net worth. However, this will be at the expense of his lifestyle which will be significantly inferior to the owner because of the lower class of neighborhood he will live in for all his life.
Based on the math I would always choose to be an owner given the two scenarios from above. Although the renter from above will have a higher net worth; it will only be higher by maybe $150-$350K. I would rather live in a nice place all my life and lose that money then to live in an apartment/crappy neighborhood for all my life.
very few folks , especially in these parts ever rent as much house as they would buy . it rarely is an identical comparison .
in our area homes start at 800k , but a luxury rental in a high rise can run just 2500 bucks . i would never ever entertain renting a house but i would buy one if i was interested ..
we tend to buy much more home then we rent and i think that is just human nature any where . urban city's are going to be very different from rural in that regards where city's tend to have multi family rentals and hi-rise buildings .
they are far far cheaper then renting an entire house on so many levels as well as can be pretty nice . .
even in manhattan you can rent a one bedroom in our central park building for 7k a month but buying will set you back 1.50 million with 25% required down .
the mortgage would run about 6k , maintaince 2k or more , plus on the 375k down payment about 15k in income given up or more .
it can take many years to break even, which in many desirable areas is always the case , real estate is a long term investment and like most long term investments a decent return can take years .
Last edited by mathjak107; 04-18-2016 at 08:37 AM..
Isn't this the only true comparison? Comparing, as the OP did, renting a 1 bedroom apartment with buying a 3 bedroom home is not a fair comparison. As I said earlier, quality of life comes into the equation for most of us. Whether you feel your quality of life is better renting or buying is answered differently by each. Money is not the entire decision maker.
And even from the financial angle it varies from one area to another. In the HCOL cities it is really not uncommon for renting to be a financial win, particularly if you do not "cheat". (By "cheat", I mean assuming that the homeowner does all their own work and values their time/labor at $0/hour.)
half the homeowners in the country can't write off a penny .
The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers., a typical first-time homebuyer, financing 95 percent or less of a median-priced U.S. home (around $200,000) pays less than $12,000 in mortgage interest and property taxes annually. That is not enough to hit the itemization level. Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal.
In 2012, 77 percent of the benefits went to homeowners with incomes above $100,000, while close to half of homeowners with mortgages, most of them middle- and lower-income families, receive no benefit from the deduction, according to the Center on Budget and Policy Priorities.
There are many more itemized deductions than just mortgage interest and property taxes. It's not that "hard" to go over $12,600 in itemized deductions because the other deductions include other taxes paid (income tax, sales tax, etc), charitable contributions, medical and dental expenses, casualty and theft losses, many job expenses possibly including (but not limited to) the following:
Business bad debt of an employee.
Business liability insurance premiums.
Damages paid to a former employer for breach of an employment contract.
Depreciation on a computer your employer requires you to use in your work.
Dues to a chamber of commerce if membership helps you do your job.
Dues to professional societies.
Educator expenses.
Home office or part of your home used regularly and exclusively in your work.
Job search expenses in your present occupation.
Laboratory breakage fees.
Legal fees related to your job.
Licenses and regulatory fees.
Malpractice insurance premiums.
Medical examinations required by an employer.
Occupational taxes.
Passport for a business trip.
Repayment of an income aid payment received under an employer's plan.
Research expenses of a college professor.
Rural mail carriers' vehicle expenses.
Subscriptions to professional journals and trade magazines related to your work.
Tools and supplies used in your work.
Travel, transportation, meals, entertainment, gifts, and local lodging related to your work.
Union dues and expenses.
Work clothes and uniforms if required and not suitable for everyday use.
Work-related education.
Check out this extensive list of possible itemized deductions.
I've itemized my deductions literally for decades, including when my income was extremely middle class and probably on the low end of middle class, and it's always been beneficial for me tax wise.
The comparison is similar to buying or leasing an automobile, which almost always comes out in favor of buying, even though cars never appreciate in value. Even the property tax and maintenance arguments don't favor leasing (renting), since owners must also pay maintenance expenses and taxes/plates. Finally, a vehicle will only last 'ten' years, while a house provides the same value for decades.
Although there are numerous variations between houses and cars, the financial and value advantages are invariably on the side of buying/owning.
The comparison is similar to buying or leasing an automobile, which almost always comes out in favor of buying, even though cars never appreciate in value. Even the property tax and maintenance arguments don't favor leasing (renting), since owners must also pay maintenance expenses and taxes/plates. Finally, a vehicle will only last 'ten' years, while a house provides the same value for decades.
Although there are numerous variations between houses and cars, the financial and value advantages are invariably on the side of buying/owning.
The analogy between houses and cars is weak here, because with cars so much hinges on whether the residual value is an over or under estimate of the true market value of the car at the end of the would-be lease period. There is no equivalent issue with renting/leasing housing.
And even from the financial angle it varies from one area to another. In the HCOL cities it is really not uncommon for renting to be a financial win, particularly if you do not "cheat". (By "cheat", I mean assuming that the homeowner does all their own work and values their time/labor at $0/hour.)
No doubt that looking at where we live based solely on money, renting can be a less expensive option. But, where we live is NOT based solely on money for many of us. I've owned one house or another for 30+ years. I've lived in apartments between houses which reaffirmed that for me that's one step higher than the 3rd circle of hell. Could I have more money in my retirement fund if I chose to live in 1-2 bedroom apartment for those 30 years? Probably, but the cost would have been too high for me. YMMV.
There are many more itemized deductions than just mortgage interest and property taxes. It's not that "hard" to go over $12,600 in itemized deductions because the other deductions include other taxes paid (income tax, sales tax, etc), charitable contributions, medical and dental expenses, casualty and theft losses, many job expenses possibly including (but not limited to) the following:
Business bad debt of an employee.
Business liability insurance premiums.
Damages paid to a former employer for breach of an employment contract.
Depreciation on a computer your employer requires you to use in your work.
Dues to a chamber of commerce if membership helps you do your job.
Dues to professional societies.
Educator expenses.
Home office or part of your home used regularly and exclusively in your work.
Job search expenses in your present occupation.
Laboratory breakage fees.
Legal fees related to your job.
Licenses and regulatory fees.
Malpractice insurance premiums.
Medical examinations required by an employer.
Occupational taxes.
Passport for a business trip.
Repayment of an income aid payment received under an employer's plan.
Research expenses of a college professor.
Rural mail carriers' vehicle expenses.
Subscriptions to professional journals and trade magazines related to your work.
Tools and supplies used in your work.
Travel, transportation, meals, entertainment, gifts, and local lodging related to your work.
Union dues and expenses.
Work clothes and uniforms if required and not suitable for everyday use.
Work-related education.
Check out this extensive list of possible itemized deductions.
I've itemized my deductions literally for decades, including when my income was extremely middle class and probably on the low end of middle class, and it's always been beneficial for me tax wise.
statistics say other wise.
only higher incomes way above averages get to itemize for the most part .
a typical first-time homebuyer, financing 95 percent or less of a median-priced U.S. home (around $200,000) pays less than $12,000 in mortgage interest and property taxes annually. That is not enough to hit the itemization level. Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal.
In 2012, 77 percent of the benefits went to homeowners with incomes above $100,000, while close to half of homeowners with mortgages, most of them middle- and lower-income families, receive no benefit from the deduction, according to the Center on Budget and Policy Priorities.
with rates even lower today the numbers are even worse for those able to itemize .
No doubt that looking at where we live based solely on money, renting can be a better value. But, where we live is NOT based solely on money for many of us. I've owned one house or another for 30+ years. I've lived in apartments between houses which reaffirmed that for me that's one step higher than the 3rd circle of hell. Could I have more money in my retirement fund if I chose to live in 1-2 bedroom apartment for those 30 years? Probably, but the cost would have been too high for me. YMMV.
Yes, very true. Some people prefer chocolate ice cream and others vanilla. There is price, which can be discussed objectively, but merely showing that (for example) vanilla ice cream is cheaper, does not justify a blanket statement that it is "better". Same thing with housing, really.
only higher incomes way above averages get to itemize for the most part .
a typical first-time homebuyer, financing 95 percent or less of a median-priced U.S. home (around $200,000) pays less than $12,000 in mortgage interest and property taxes annually. That is not enough to hit the itemization level. Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal.
In 2012, 77 percent of the benefits went to homeowners with incomes above $100,000, while close to half of homeowners with mortgages, most of them middle- and lower-income families, receive no benefit from the deduction, according to the Center on Budget and Policy Priorities.
with rates even lower today the numbers are even worse for those able to itemize .
them's the actual facts .
The last article I saw on homeownership had it at 63.4%. Must be factors other than the deductibility of mortgage interest at play when people make the rent/buy decision.
it is still pretty low in either case when you figure that folks are mislead to believe that owning generates all kinds of money back and they do not realize how income level dependent it is as far as itemizing .
lower rates have made things even harder .
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