I can’t imagine buying for the following reasons.

1. I live pay check to pay check

2. I don’t have a penny for a down payment.

3. 10% of my income goes into 401k. How am I supposed to save with that amount?

4. The mortgage is equivalent as my rent but add on the other things like property taxes, HOA Fees and so on and all of a sudden what seemed like a no brainer would lead me to stress over something I could not afford, given all the extras that you have to pay each month.

5. I am one of those people that will never be able to afford a house and one day when I switch jobs and make more money and can afford to save for a down payment, the housing market will have recovered, still keeping me out of the market.

6. The only thing I can hope for is to keep working till I can’t move and hope to have enough money saved to last for old age, living, medical care, retirement or assisted living when i’m closer to death, where they don’t abuse the people living there, and funeral arrangements.

7. I’ve heard in many cases, even when people pay off their homes, that in old age they can’t afford the fluctuating property taxes and are forced to sell because they are on fixed incomes.

Sometimes I think the DIY home repair goes over the edge from frugal to obsessive, but it’s working out so far.

Best,

RB

There’s no right or wrong reason. Owning my propreties over the past 6-7 years have given me a strong sense of stability and responsibility. The property I bought 7 years ago is now a cash flow positive rental. The house I bought 4.5 years ago is just my home. I’m in the 35% federal tax bracket, and pay 9.6% California state income tax, so the mortgage interest deduction really works for me.

I’d happily rent if I knew I’d just be here temporarily. The one thing I will highlight though, is that the housing stock is generally better when purchased than when rented, as landlords don’t update the property as nice as owners do.

You’ve got to live somewhere, so renters who feel they’ve “flushed” money down the drain over the years shouldn’t feel this way!

Best,

RB

Tough to know but it just gets you thinking and doubting.

Our house is more work than most people’s because it’s 106 years old, but I notice most homeowners have a constantly-unfinished list of house projects. Ours are just a little more urgent.

We have:
*rebuilt the garage
*lived without water for 3 weeks until we could get a contractor to replace the pipe from the water main to our property. (no fault there – it was the same age as the house and the elm tree finally ate it)
*added railings and re-built the concrete steps by the sidewalk (our insurance company threatened to drop our insurance if we didn’t put in a railing.)
* scraped lead paint in full lead-abatement gear and repainted the 2-story full-attic 3-color Victorian. My partner swears our next house will have stucco.
* prune trees every year – some taller than the house
* a large perennial flowerbed would take up all the free time I cared to give it – it’s now mostly echinacea
* bleed the radiators
* caulk all the windows
* repair window screens
* repair custom-size windows when neighbor-kids throw baseballs through them.
* repair antique doorknobs
* replace locks and doorframes
* weatherproof around doors
* insulate previously un-insulated walls
* interior lead abatement of doors & windows
* replacing one room’s carpet
* rewired outlets that ought to be grounded, and weren’t.
* added extra outlets
* upgraded main electrical box
* built a retaining wall

Currently we’re rehabbing a kitchen that was installed in the ’60s (bronze oven and stove, gold-flecked formica countertops) and clumsily updated in the ’80s (glued-on wood paneling, overhead fluorescents, a dropped ceiling that looks like my old elementary school, hideous orange-brown linoleum.)

I’m driving 106 miles/day to work and back and ready to move, but I’m in no hurry as the drive is in light traffic and gas prices are still relatively low…but I don’t want to miss out on that tax credit.

Hint: The area I’m buying is lost both a GM and Chrysler plant, so unemployment is 15% and home prices are reflecting that. I can get new construction for $150k. My point is – the $8k is substancial on a $150k purchase vs. a $250k purchase.

I’ve been looking to buy to take advantage of the “buyers” market and the $8000 tax credit, but it’s not necessarily a buyers market in my price range, hovering somewhere slightly above $100000, depending on how much the particular house is worth living in to us.

I do have a pre-approval from the bank, but most of the houses in that price range always seem to have some problems, and when you find a good one, something inevitably falls through when you’re trying to negotiate a short-sale with the bank.

We’ve already had 2 offers all but ignored, even when we offered what they were asking for 1 of them. The deals are out there, but it’s definitely not as easy as it should be.

But in the end, with home prices lower than usual, low interest rates, and the tax credit to boot, it seems like the best way to go is to buy over renting.

I figure with the housing market drop over the last 2 years, I would have probably lost about $20000 in value on any house I bought, so I probably broke even.

Now if I can just buy a house before the market comes back.

I sold my house and now rent from my girlfriend and we split the mortgage 35% me, 65%. She gets the tax benefit and equity. It’s not our dream home, but I can see us staying longer than we’d like due to moving costs.

Great post. I’ve always like this debate, esepcially after reading Robert Kiyosaki’s Rich Dad, Poor Dad.

Speaking as one with many years of experience in the mortgage industry, you’re advice is right on the money with the way you’ve (realistically) addressed the various options.

If I can add one more piece of advice to the topic… property values in many areas of the country are depressed right now, and in a lot of places they’re still falling. That’s in an evironment of 5% interest rates. A return to historic norms of 6-7-8% would likely accelerate the current price trend, so it may be an advantage to take your time, and get the best deal you can.

If I were a betting man, I’d bet that time is probably on your side.

@Teri: Great job on planning ahead on the house. Some people forget that this is the largest purchase they’ll make. Running the numbers is a must if you want to be a good choice.

@Rosa: I’m glad you got an affordable mortgage in a good neighborhood. How much work did you have to put in to your home? I’m just curious as we’re looking at new and previously owned properties.

@Mike: You bring out some great advantages of renting flexibility and more money to set aside for investing and saving. What do you invest your ‘extra’ money in? When are you planning to retire?

@Kasey: I’m glad you saved up a down payment. With your payments being around rent price, it sounds as if you got a great deal. Congrats!

@Mils: Great point on considering start-up costs (a great topic for another post!) since many don’t factor that in. A piece of advice passed on to us was to ask around too see how much utilities are for the places we’re looking at. You’ll be surprised at how real estate agents look at you when you ask.

And so I am. Husband & I rented for first 4 years of marriage and bought our house 18 years ago. It’s probably the first & last we will have. Kids have only lived here their whole lives. Pool in the yard, a deck for sitting outside & having BBQ, gardening, etc. That is the emotional side of the equation. You feel at “home.”

That being said, it was definitely not an investment. As many have said, taxes, insurance, water/electricity, improvements, maintenance do take money away from saving/investing, not to mention the TIME that is given up to do all of these things. In hindsight I might have thought twice before buying a house.

2. I REALLY LIKE the link from the NY TIMES!

3. Buying a home is really a more emotional/future planning purchase. I had dirt cheap rent living with a friend ($300/mo), and was hoarding up cash due to the low price. Got engaged, so the whole rommie thing wouldn’t work out so I bought 2 yrs ago.
–according to that link, my renting would always be cheaper than purchasing, but it doesn’t factor in my situation such as an additional person; which would increase your living accomadations.

Good article, cause I now plenty of people who got caught up in ‘needing’ to buy a house. I always retorted that there was nothing wrong with renting for awhile. Now they’re screwed and I’m living comfortably.

I agree with Mike when he said that buying a house is an emotional decision for many people. For our family, it was worth buying a house no matter what the rent vs. own calculator said. For Mike it looks like renting is the way to go for him. I’m glad Mike isn’t buying a house just to buy a house because that’s part of what got us into this mortgage mess to begin with. We had to move to Texas from Las Vegas a few years ago to be able to afford a decent house (instead of $250k for a converted apartment in Vegas) because of all the speculating there that drove prices to ridiculous levels.

I think there is also a mentality difference for some people when it comes to renting. I noticed in the 7 years or so of renting, that I always could hear (TV, arguments, walking around) my neighbors and they didn’t seem to care.

I live in a townhouse condo now and barely hear anything. The next place my wife and I want is a single family home with some yard for the kids to run around in. Don’t quite have that now with the condo. Looking forward to not having to worry about disturbing the neighbors or them disturbing me.

However, in reality I think that buying a home isn’t really a financial decision for most people. It is an emotional one. They don’t buy a house because it is a good investment (even though they are often tricked into thinking so). Rather, they buy a house because it gives them a sense of pride, stability, and security.

IMO, I’d rather rent to save cash and watch my savings grow faster so that when I’m closer to retirement I can buy a home 10x nicer than if I bought one now.

Good post, thanks for sharing and stimulating a discussion!

I still think it was a smart decision for us financially – we got a mortgage we could afford on either of our salaries, we were able to lead mitigation before we had our baby (rental units are generally not required to do this in our state, which I think is criminal), we found something in our neighborhood we could afford.

What I didn’t take into account was how much *work* homeownership is. The combination of a big old house and a new baby was pretty overwhelming – he just turned four and i’m rediscovering the concept of free time.

Well, back to browse the listings!

There’s something about buying that makes people want to have lots of living space. And there’s something about renting that makes people want to get by with less living space.

Rob