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Archive for April, 2007

Financially Speaking, Renting Beats Buying

posted April 18th, 2007 @ 6:38 am by The Tim

Maybe I’m going overboard on this whole renting vs. purchasing thing, but here’s yet another article that hopefully will help drive the point home: Renting Makes More Financial Sense Than Homeownership

I HAVE SOMETHING un-American to confess: I rent an apartment, despite having enough money to buy a house. I plan to keep renting for as long as I can. I’m not just holding out for better prices. Renting will make me richer.

I normally write about stocks for, but the boss asked me to explain to readers my reason for renting. Here goes: Businesses are great investments while houses are poor ones, so I’d rather rent the latter and own the former.

Shares of businesses return 7% a year over long time periods. I’m subtracting for inflation…

The average real return for houses over long time periods might surprise you. It’s zero.

“You say houses return zero. But I’ve made a fortune on my house in recent years.”

I’m referring to inflation-adjusted returns over long time periods, absent external boosts to demand. You’re referring to gross returns over a short time period that combined lax borrowing standards and ultra-low interest rates.

Remember, I’m not saying “don’t ever buy a house.” I’m saying “don’t ever buy a house as a means to generate a profit.” I’m nowhere near as hard core as this guy, in that I would probably have already bought a house by now if prices were sane. But as long as things are this far out of whack, the financial benefits of renting far outweigh the psychological benefits of purchasing (for me).

New York Times: Now is not a good time to buy.

posted April 11th, 2007 @ 6:42 am by The Tim

Speaking of Buying vs. Renting, none other than the New York Times agrees that now is not a “good time to buy.”

By the Realtors’ way of thinking, it’s always a good time to buy. Homeownership, they argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time.

That’s how it has worked out for much of the last 15 years. But in a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters.

Most striking, perhaps, is the fact that prices may not yet have fallen far enough for buying to look better than renting today, except for people who plan to stay in a home for many years.

3… 2… 1… Duh.

What’s interesting to me is that their interactive Rent vs. Buy tool returns results very similar to my spreadsheet, although it is actually slightly more generous toward renting.

Hat tip: Calculated Risk